Shrover began business at the start of the current year. The company planned to produce 40,000 units, and actual production conformed to expectations. Sales totalled 37,000 units at $42 each. Costs incurred were: $\begin{array} { | l | r | }
\hline \text { Fixed manufacturing overhead } & \$ 240,000 \
\hline \text { Fixed selling and administrative cost } & 140,000 \
\hline \text { Variable manufacturing cost per unit } & 19 \
\hline \text { Variable selling and administrative cost per unit } & 7 \
\hline & \
\hline
\end{array}$ If there were no variances, Shrover's variable-costing net income would be:
A)$155,000.
B)$212,000.
C)$240,500.
D)$452,000.
E)$592,000.

Question

Shrover began business at the start of the current year. The company planned to produce 40,000 units, and actual production conformed to expectations. Sales totalled 37,000 units at $42 each. Costs incurred were: $\begin{array} { | l | r | } 
\hline \text { Fixed manufacturing overhead } & \$ 240,000 \
\hline \text { Fixed selling and administrative cost } & 140,000 \
\hline \text { Variable manufacturing cost per unit } & 19 \
\hline \text { Variable selling and administrative cost per unit } & 7 \
\hline & \
\hline
\end{array}$ If there were no variances, Shrover's variable-costing net income would be:
A)$155,000.
B)$212,000.
C)$240,500.
D)$452,000.
E)$592,000.

Quizplus · Accepted Answer

Variable costing net income is calculated by subtracting variable costs and fixed costs from sales revenue. Sales revenue is $1,554,000 (37,000 units x $42). Total variable costs are $962,000 (37,000 units x ($19 + $7)). Fixed costs are $380,000 ($240,000 + $140,000). Net income is $1,554,000 - $962,000 - $380,000 = $212,000.

Shrover Began Business at the Start of the Current Year