Answer:
Net income under variable costing would be $429,000.
Explanation:
Under the variable costing method the most important point to understand here is that fixed cost of the previous period ( 3000 units in this case ) would not be carried over to current period. Which means that the fixed cost and cost of goods sold be less now and the profit will increase.
NET INCOME =
SALES = $ 1035,000 ( 23,000 X 45 )
(-) COST OF GOODS SOLD = ($ 391,000) ( 23000 X 17 )
( We have multiplied 23,000 units by 17 because now those fixed cost of $5 are not carried forward to this period)
GROSS CONTRIBUTION MARGIN = $1035,000 - $391,000
= $644,000
(-)VARIABLE SELLING AND ADMINISTRATION EXPENSES = ($69,000)
( $115,000 X 60% )
CONTRIBUTION MARGIN = $644,000 - $69,000
= $575,000
(LESS) FIXED COSTS = ($146,000) [ $100,000 + $46,000 ]
1) MANUFACTURING COST = 20,000 X $5
= $100,000
2) SELLING AND ADMINISTRATION EXPENSES = $115,000 X 40%
= $46,000
INCOME = $575,000 - $146,000
= $429,000
