Question

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Advanced Company reports the following information for the current year. All beginning inventory amounts equaled $0 this year.

Units produced this year		43,000	units
Units sold this year		25,800	units
Direct materials	$	27	per unit
Direct labor	$	29	per unit
Variable overhead	$	3	per unit
Fixed overhead	$	215,000	in total

Given Advanced Company's data, and the knowledge that the product is sold for $83 per unit and operating expenses are $380,000, compute the net income under variable costing.

• $86,000

• $24,200

• $355,180

• $110,200

• $388,600

Answer 1

Answer: The correct answer is $24,200

Unit Product Cost = Direct material per unit + Direct Labor per unit + Variable Overhead per unit
Unit Product Cost = $27 + $29 + $3
Unit Product Cost = $59

Variable Cost of Goods Sold = Units Sold * Unit Product Cost
Variable Cost of Goods Sold = 25,800 * $59
Variable Cost of Goods Sold = $1,522,200

Sales = Units Sold * Selling price per unit
Sales = 25,800 * $83
Sales = $2,141,400

Contribution Margin = Sales - Variable Cost of Goods Sold
Contribution Margin = $2,141,400 - $1,522,200
Contribution Margin = $619,200

Net Income = Contribution Margin - Fixed Overhead - Operating Expenses
Net Income = $619,200 - $215,000 - $380,000
Net Income = $24,200