Tim's Tools, a manufacturer of cordless drills, began operations this year. During this year, the company produced 20,000 units and sold 18,000 units. At year-end, the company reported the following income statement using absorption costing: Production costs per unit total $14, which consists of $12.90 in variable production costs and $1.10 in fixed production costs (based on the 20,000 units produced). 60% of total selling and administrative expenses are variable. Compute net income under variable costing.
A) $307,800
B) $198,000
C) $195,800
D) $288,000
E) $220,000

Question

Tim's Tools, a manufacturer of cordless drills, began operations this year. During this year, the company produced 20,000 units and sold 18,000 units. At year-end, the company reported the following income statement using absorption costing:  Production costs per unit total $14, which consists of $12.90 in variable production costs and $1.10 in fixed production costs (based on the 20,000 units produced). 60% of total selling and administrative expenses are variable. Compute net income under variable costing.
A) $307,800 
B) $198,000 
C) $195,800 
D) $288,000 
E) $220,000

Quizplus · Accepted Answer

$198,000 − (2,000 units × FOH $1.10) = $195,800

Tim's Tools, a Manufacturer of Cordless Drills, Began Operations This