Bernardo Company reported the following units of production and sales for August and September 2018: $\begin{array}{lrr}&\text { Units }\
\hline \text { Month }& \text { Produced } & \text { Sold } \
\text { August } 2018 & 100,000 & 90,000 \
\text { September } 2018 & 100,000 & 105,000
\end{array}$
Net income under absorption costing for August was $40,000; net income under variable costing for September was $50,000. Fixed manufacturing costs were $600,000 for each month.
How much was net income for August using variable costing?
A)$40,000
B)$20,000
C)$(20,000)
D)$(40,000)

Question

Bernardo Company reported the following units of production and sales for August and September 2018: $\begin{array}{lrr}&\text { Units }\
\hline  \text { Month }& \text { Produced } & \text { Sold } \
\text { August } 2018 & 100,000 & 90,000 \
\text { September } 2018 & 100,000 & 105,000
\end{array}$
Net income under absorption costing for August was $40,000; net income under variable costing for September was $50,000. Fixed manufacturing costs were $600,000 for each month.
How much was net income for August using variable costing?
A)$40,000
B)$20,000
C)$(20,000)
D)$(40,000)

Quizplus · Accepted Answer

Under variable costing, fixed manufacturing costs are expensed in the period incurred. In August, 10,000 units were produced but not sold, so $60,000 of fixed costs (10,000 units x $6 per unit) are deferred in inventory under absorption costing. Therefore, net income under variable costing is $40,000 - $60,000 = $(20,000).

Bernardo Company Reported the Following Units of Production and Sales