Production costs per tennis racket total $38, which consists of $25 in variable production costs and $13 in fixed production costs (based on the 6,000 units produced). Ten percent of total selling and administrative expenses are variable. Compute net income under variable costing.
Aces, Inc., a manufacturer of tennis rackets, began operations this year. The company
produced 6,000 rackets and sold 4,900. At year-end, the company reported the following income statement using absorption costing.
A) $194,100
B) $165,500
C) $311,000
D) $240,500
E) $233,000
B) $165,500
Explanation: $179,800 – ($13 × 1,100 units) = $165,500
Income under absorption costing = Income under variable costing + FOH in Ending inventory –FOH in Beginning inventory
$179,800 = Income under variable costing + (1,100 units × FOH $13) – (0 units × FOH $13)
$179,800 = Income under variable costing + $14,300 – $0
$165,500 = Income under variable costing
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