Wind Fall, a manufacturer of leaf blowers, began operations this year. During this year, the company produced 10,000 leaf blowers and sold 8,500. At year-end, the company reported the following income statement using absorption costing: Production costs per leaf blower total $20, which consists of $16 in variable production costs and $4 in fixed production costs (based on the 10,000 units produced). Fifteen percent of total selling and administrative expenses are variable. Compute net income under variable costing.
A) $146,500
B) $158,500
C) $237,500
D) $206,500
E) $246,500

Question

Wind Fall, a manufacturer of leaf blowers, began operations this year. During this year, the company produced 10,000 leaf blowers and sold 8,500. At year-end, the company reported the following income statement using absorption costing:  Production costs per leaf blower total $20, which consists of $16 in variable production costs and $4 in fixed production costs (based on the 10,000 units produced). Fifteen percent of total selling and administrative expenses are variable. Compute net income under variable costing.
A) $146,500 
B) $158,500 
C) $237,500 
D) $206,500 
E) $246,500

Quizplus · Accepted Answer

Income under absorption costing = Income under variable costing + FOH in Ending inventory − FOH in Beginning inventory
$152,500 = Income under variable costing + (1,500 units × FOH $4) − (0 units × FOH $4)
$152,500 = Income under variable costing + $6,000 − $0
$146,500 = Income under variable costing

Wind Fall, a Manufacturer of Leaf Blowers, Began Operations This