Production costs per leaf blower total $20, which consists of $16 in variable production costs and $4 in fixed production costs (based on the 10,000 units produced). Fifteen percent of total selling and administrative expenses are variable. Compute net income under variable costing.
Wind Fall, a manufacturer of leaf blowers, began operations this year. During this year, the
company produced 10,000 leaf blowers and sold 8,500. At year-end, the company reported the following income statement using absorption costing:
A) $146,500
B) $158,500
C) $237,500
D) $206,500
E) $246,500
A) $146,500
Explanation: Income under absorption costing = Income under variable costing + FOH in
Ending inventory – FOH in Beginning inventory
$152,500 = Income under variable costing + (1,500 units × FOH $4) – (0 units × FOH $4)
$152,500 = Income under variable costing + $6,000 – $0
$146,500 = Income under variable costing
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