Westwood Company has the following information the current year:
Eastwood had no beginning inventories.
$\begin{array}{lr}
\text { Selling price } & \$ 300 \text { per unit } \
\text { Variable production costs } & \$ 80 \text { per unit produced } \
\text { Variable selling and administrative expenses } & \$ 32 \text { per unit sold } \
\text { Fixed production costs } & \$ 400,000 \
\text { Fixed selling and administrative expenses } & \$ 280,000 \
\text { Units produced } & 20,000 \text { units } \
\text { Units sold } & 16,000 \text { units }
\end{array}$
-Refer to the Figure.What is the net income for Westwood using the variable costing method?
A)$412,000
B)$480,000
C)$600,000
D)$1,200,000

Question

Westwood Company has the following information the current year:
Eastwood had no beginning inventories.
 $\begin{array}{lr}
\text { Selling price } & \$ 300 \text { per unit } \
\text { Variable production costs } & \$ 80 \text { per unit produced } \
\text { Variable selling and administrative expenses } & \$ 32 \text { per unit sold } \
\text { Fixed production costs } & \$ 400,000 \
\text { Fixed selling and administrative expenses } & \$ 280,000 \
\text { Units produced } & 20,000 \text { units } \
\text { Units sold } & 16,000 \text { units }
\end{array}$
-Refer to the Figure.What is the net income for Westwood using the variable costing method?
A)$412,000
B)$480,000
C)$600,000
D)$1,200,000

Quizplus · Accepted Answer

Under the variable costing method, only variable costs are considered in product costing. Fixed production costs are treated as period costs and expensed in the period incurred. The calculation is as follows:Revenue = Selling price per unit * Units sold = $300 * 16,000 = $4,800,000Variable production costs = Variable production cost per unit * Units produced = $80 * 16,000 = $1,280,000Variable selling and administrative expenses = Variable selling and admin expense per unit * Units sold = $32 * 16,000 = $512,000Total variable costs = Variable production costs + Variable selling and administrative expenses = $1,280,000 + $512,000 = $1,792,000Contribution margin = Revenue - Total variable costs = $4,800,000 - $1,792,000 = $3,008,000Fixed costs = Fixed production costs + Fixed selling and administrative expenses = $400,000 + $280,000 = $680,000Net income = Contribution margin - Fixed costs = $3,008,000 - $680,000 = $2,328,000It appears there was a mistake in my calculation. Let's correct that:Revenue = $300 * 16,000 = $4,800,000Variable costs (production + selling and administrative) = ($80 + $32) * 16,000 = $112 * 16,000 = $1,792,000Contribution Margin = Revenue - Variable costs = $4,800,000 - $1,792,000 = $3,008,000Net Income = Contribution Margin - Fixed Costs (production + selling and administrative) = $3,008,000 - ($400,000 + $280,000) = $3,008,000 - $680,000 = $2,328,000Given the options provided, none of them matches the corrected calculation. It seems there was an error in my initial response or in the interpretation of the question's data. Based on the provided information and the corrected calculation, the correct net income should be $2,328,000, which is not listed among the options. Therefore, I must correct my response to accurately reflect the question's choices:Given the provided options and the calculations based on variable costing, it seems there has been a misunderstanding in the calculation process. The correct approach to find the net income under variable costing should involve subtracting all variable costs (both production and selling/administrative) from the sales revenue and then subtracting the fixed costs. However, without the correct calculation aligning to the provided options, an accurate selection cannot be made based on the initial explanation.

Westwood Company Has the Following Information the Current Year: Eastwood

Westwood Company Has the Following Information the Current Year:
Eastwood