Futon Delight experienced the following costs in 2017 (Assume the same unit costs in all years): $\begin{array}{ll}
\text { Direct materials } & \$ 2.00 \text { per unit } \
\text { Direct labor } & \$ 1.00 \text { per unit }\\text { Manufacturing Overhead Costs: }\
\text { Variable } &\$ 1.50 \text { per unit }\\text { Fixed }&\$45,000
\end{array}$ There were 600 units in beginning inventory.During the year, the company manufactured 18,000 units and sold 17,600 units.If net income for the year was $54,000 using full costing, how much will net income be if the company uses variable costing?
A)$53,000
B)$50,000
C)$55,000
D)More information is needed to determine the answer.

Question

Quizplus · Accepted Answer

Under variable costing, fixed manufacturing overhead is expensed in full in the period incurred. The difference in net income between full costing and variable costing is due to the fixed manufacturing overhead cost deferred in inventory. With 400 units remaining in inventory (18,000 produced - 17,600 sold), the fixed overhead cost deferred is $1,000 (400 units x $2.50 per unit). Therefore, net income under variable costing is $54,000 - $1,000 = $53,000.

Futon Delight Experienced the Following Costs in 2017 (Assume the Same