Red River Company sells its product for $12,000 per unit. Variable costs per unit are: Manufacturing overhead -$8,000
Selling and administrative -$150
Fixed costs are:
Manufacturing overhead -$30,000
Selling and administrative -$40,000
Red River had no beginning inventory at January 1, 2010. Production was 20 units each year in 2010, 2011, and 2012. Sales were 20 units in 2010, 16 units in 2011, and 24 units in 2012.
Income/(Loss) under variable costing for 2011 is:
A)$12,000.
B)($2,400).
C)($8,400).
D)$16,400.
E)$40,400

Question

Quizplus · Accepted Answer

Under variable costing, income is calculated by subtracting variable costs and fixed costs from sales revenue. In 2011, sales revenue is $192,000 (16 units x $12,000). Variable costs are $131,400 (16 units x $8,150). Fixed costs are $70,000. Therefore, income is $192,000 - $131,400 - $70,000 = ($8,400).

Red River Company Sells Its Product for $12,000 Per Unit