Figure 7-3
Eastwood Company has the following information for 2011: $\begin{array}{lr}
\text { Selling price } & £ 150 \text { per unit } \
\text { Variable production costs } & £ 40 \text { per unit produced } \
\text { Variable selling and admin. expenses } & £ 16 \text { per unit sold } \
\text { Fixed production costs } & £ 200,000 \
\text { Fixed selling and admin. expenses } & £ 140,000 \
\text { Units produced } & 10,000 \text { units } \
\text { Units sold } & 8,000 \text { units }
\end{array}$ There were no beginning inventories.
-Refer to Figure 7-3. What is the net income for Eastwood using the variable costing method?

Question

Quizplus · Accepted Answer

Under the variable costing method, only variable costs are considered in product costing. Fixed costs are treated as period costs and expensed in the period they are incurred. The calculation is as follows: Revenue (£150 * 8,000 units) = £1,200,000; Variable costs = Variable production costs (£40 * 8,000) + Variable selling and admin expenses (£16 * 8,000) = £320,000 + £128,000 = £448,000; Contribution margin = £1,200,000 - £448,000 = £752,000; Net income = Contribution margin - Fixed costs (production + selling and admin) = £752,000 - (£200,000 + £140,000) = £752,000 - £340,000 = £412,000.

Figure 7-3 Eastwood Company Has the Following Information for 2011

Figure 7-3
Eastwood Company Has the Following Information for 2011