Fields Cutlery, a manufacturer of gourmet knife sets, produced 20,000 sets and sold 23,000 units during the current year. Beginning inventory under absorption costing consisted of 3,000 units valued at $66,000 (Direct materials $12 per unit; Direct labor, $3 per unit; Variable Overhead, $2 per unit, and Fixed overhead, $5 per unit.) All manufacturing costs have remained constant over the 2-year period. At year-end, the company reported the following income statement using absorption costing: 60% of total selling and administrative expenses are variable. Compute net income under variable costing.
A) $414,000
B) $399,000
C) $529,000
D) $429,000
E) $644,000

Question

Fields Cutlery, a manufacturer of gourmet knife sets, produced 20,000 sets and sold 23,000 units during the current year. Beginning inventory under absorption costing consisted of 3,000 units valued at $66,000 (Direct materials $12 per unit; Direct labor, $3 per unit; Variable Overhead, $2 per unit, and Fixed overhead, $5 per unit.) All manufacturing costs have remained constant over the 2-year period. At year-end, the company reported the following income statement using absorption costing:  60% of total selling and administrative expenses are variable. Compute net income under variable costing.
A) $414,000 
B) $399,000 
C) $529,000 
D) $429,000 
E) $644,000

Quizplus · Accepted Answer

Income under absorption costing = Income under variable costing + FOH in Ending inventory − FOH in Beginning inventory
$414,000 = Income under variable costing + (0 units × FOH $5) − (3,000 units × FOH $5)
$414,000 = Income under variable costing − $15,000
$429,000 = Income under variable costing

Fields Cutlery, a Manufacturer of Gourmet Knife Sets, Produced 20,000