Question

Foxtrot reported $65,000 of income for the year by using absorption costing. The company had no beginning inventory, planned and actual production of 20,000 units, and sales of 18,000 units. Standard variable manufacturing costs were $20 per unit, and total budgeted fixed manufacturing overhead was $100,000. If there were no variances, income under variable costing would be: $75,000. $65,000. $15,000. $115,000. $55,000.

Answer 1

Income under variable=$55,000

Option D is correct ( $55,000.)

Step-by-step explanation:

Lets first calculate the total cost per unit:

Total cost per unit=
`(manufacturing\ overhead)/(actual\ production\ units) +Standard\ variable\ manufacturing\ cost\ per\ unit`

Total Cost per unit=
`(\$100,000)/(20,000)+ \$20`

Total cost per unit=$25

Sales Revenue=Total cost per unit*units sold+Income using absorption costing

Sales Revenue=$25*18,000+$65,000

Sales Revenue=$515,000

Cost of goods sold= Standard variable cost per unit*units sold

Cost of goods sold=$20*18,000

Cost of goods sold=$360,000

Income under variable=Sales Revenue-Cost of goods sold-fixed manufacturing overhead

Income under variable=$515,000-$360,000-$100,000

Income under variable=$55,000

Option D is correct ( $55,000.)

Answer 2

The net income under variable costing would $55,000

Step-by-step explanation:

Under absorption costing, the fixed for closing inventory has been deferred ,hence in order to calculate net income variable costing method,the deferred fixed cost in respect of closing inventory must be deducted from profit ascertained under absorption costing as below

Profit using variable costing=profit under absorption costing minus deferred fixed cost

deferred fixed cost=(20000-18000)*$100000/$20

=$10,000

profit under variable costing =$65,000-$10000

=$55,000