Wet Pets Inc. makes 100-gallon plexiglass aquariums. They reported the following financial information for last year:
Assume that the fixed costs were the same on a per-unit basis during the prior period.
What would Operating Income be under variable costing? (Round per-unit costs to the nearest cent.)
A) $188,340
B) $219,660
C) $190,000
D) $218,000
E) None of the above

Question

Wet Pets Inc. makes 100-gallon plexiglass aquariums. They reported the following financial information for last year:
 Assume that the fixed costs were the same on a per-unit basis during the prior period.
What would Operating Income be under variable costing? (Round per-unit costs to the nearest cent.)
A) $188,340 
B) $219,660 
C) $190,000 
D) $218,000 
E) None of the above

Quizplus · Accepted Answer

Variable Income = Absorption Income - (change in inventory units × Fixed Overhead/unit)
Production - Sales = 12,000 - 10,000 = 2,000
Total fixed overhead = $50,000 salary + $24,000 rent + $10,000 depreciation = $84,000
Fixed overhead / unit = $84,000/12,000 units = $7.00/unit
Variable Income = $204,000 - (2,000 units × $7.00/unit) = $190,000