Question

Aces Incorporated, a manufacturer of tennis rackets, began operations this year. The company produced 6,450 rackets and sold 5,130. Each racket was sold at a price of $90. Fixed overhead costs are $83,850 per year, and fixed selling and administrative costs are $66,200 per year. The company also reports the following per unit variable costs for the year. Direct materials $12, Direct labor $8, Variable overhead $5, Variable selling and administrative expenses $2. Prepare an income statement under variable costing.

a. Sales Revenue: $461,700; Variable Costs: $260,100; Contribution Margin: $201,600
b. Sales Revenue: $461,700; Variable Costs: $222,300; Contribution Margin: $239,400
c. Sales Revenue: $580,500; Variable Costs: $319,950; Contribution Margin: $260,550
d. Sales Revenue: $580,500; Variable Costs: $381,150; Contribution Margin: $199,350

Answer 1

After calculating based on the given data for Aces Incorporated, it is determined that none of the provided choices correctly state the calculated contribution margin, as the correct figures are Sales Revenue: $461,700; Variable Costs: $138,510; Contribution Margin: $323,190.

Step-by-step explanation:

The objective here is to prepare an income statement under variable costing for Aces Incorporated. To find the correct option from the given choices, we need to calculate the sales revenue, variable costs, and contribution margin.

Sales Revenue is calculated as the number of units sold multiplied by the selling price per unit. Therefore, Sales Revenue = 5,130 units × $90/unit = $461,700.

To calculate the total variable costs, we sum up the variable costs per unit for all units sold. We have:

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Adding these gives us a total variable cost per unit of $27. The total variable costs for all units sold is then 5,130 units × $27/unit = $138,510.

The contribution margin is the difference between the sales revenue and the total variable costs. Thus, Contribution Margin = Sales Revenue - Total Variable Costs = $461,700 - $138,510 = $323,190.

It appears that none of the provided options correctly state the calculated contribution margin. Hence, the figures as per the calculations are:

Sales Revenue: $461,700; Variable Costs: $138,510; Contribution Margin: $323,190.