Question

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: Sales (8,500 × $45) $ 382,500 Cost of goods sold (8,500 × $20) 170,000 Gross margin $ 212,500 Selling and administrative expenses 60,000 Net income $ 152,500 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. Multiple Choice $146,500 $158,500 $237,500 $206,500 $246,500

Answer 1

Answer: Option (a) $146,500 is correct.

Explanation:

Company produced = 10,000 leaf blowers

Company produced sold =  8,500 leaf blowers

Income statement of year-end:

Sales = $ 382,500

Cost of goods sold = 170,000

Gross margin = $ 212,500

Selling and administrative expenses = 60000

Net income = $ 152,500

Production costs per leaf blower total = $20

Variable cost of goods sold = 8500 × $16 = $136000

Variable selling and administrative expenses = 15% of 60000 = $9000

Fixed production Cost = 10000 × $4 = 40000

Fixed Selling & Administrative expenses = (100% - 15%) of 60000 = $51000

∴ Net income under variable costing = sales - Variable cost of goods sold - Variable selling and administrative expenses - Fixed production Cost - Fixed Selling & Administrative expenses

= 382,500 - 136000 - 9000 - 40000 - 51000

= 146500