Answer:
The net income of the wind fall under variable costing will be $146,500
Explanation:
For calculating the net income of the wind fall here what we have to do is, to simply subtract the variable cost and the fixed cost from the sales.
Given information - Sales = $382,500 ( 8500 x $45 )
Units produced = 10,000
Units sold = 8500
Cost of goods sold = $170,000
Gross margin = $212,500
Selling and administrative expenses = $60,000
Net income = $152,500
Production cost per leaf blower is $20 where $16 is in variable production and $ 4 is for fixed production.
First step for calculating the net income under variable costing would be to subtract the variable cost from the total sales which will give us what we call contribution margin.
Contribution margin = Sales - variable cost
we have to see what is the variable cost,
Variable cost = units of leaf blowers sold x variable production cost +
variable selling and administrative expenses
= 8500 x $16 + $60,000 x 15%
= $136,000 + $9,000
= $145,000
Contribution margin = $382,500 - $145,000
= $237,500
Now that we have the contribution margin we will subtract the fixed cost from it to take out the net income
Net income = contribution margin - fixed cost
where fixed cost = fixed production cost + fixed selling and administrative
cost
= units of leaf blower made x fixed production cost +
fixed selling and administrative cost
= 10,000 x 4 + $60,000 x 85%
= $40,000 + $51,000
= $91,000
Net income = $237,500 - $91,000
= $146,500
