Leesburg Bags produces backpacks.The costs and prices for the backpacks follow (Assume the same unit costs in all years): $$\begin{array} { l r }
\text { Selling price } & \$ 23.00 \text { per backpack } \
\text { Variable costs: } & \
\text { Production } & \$ 11.00 \text { per backpack } \
\text { Selling } & \$ 2.00 \text { per backpack } \
\text { Fixed Costs: } & \
\text { Production } & \$ 900,000 \text { per year } \
\text { Selling and administrative } & \$ 540,000 \text { per year }
\end{array}$$ Leesburg Bags produced 250,000 backpacks for the year and sold 200,000.There was no beginning inventory, and costs throughout the year were stable.What would be the difference in income between variable costing income and full costing income if the company had produced 215,000 backpacks instead of 250,000?

Question

Leesburg Bags produces backpacks.The costs and prices for the backpacks follow (Assume the same unit costs in all years): $$\begin{array} { l r } 
\text { Selling price } & \$ 23.00 \text { per backpack } \
\text { Variable costs: } & \
\text { Production } & \$ 11.00 \text { per backpack } \
\text { Selling } & \$ 2.00 \text { per backpack } \
\text { Fixed Costs: } & \
\text { Production } & \$ 900,000 \text { per year } \
\text { Selling and administrative } & \$ 540,000 \text { per year }
\end{array}$$ Leesburg Bags produced 250,000 backpacks for the year and sold 200,000.There was no beginning inventory, and costs throughout the year were stable.What would be the difference in income between variable costing income and full costing income if the company had produced 215,000 backpacks instead of 250,000?

Quizplus · Accepted Answer

Variable costing income is calculated by deducting variable costs from sales revenue, while full costing income is calculated by deducting all costs (variable and fixed) from sales revenue. If the company had produced 215,000 backpacks instead of 250,000, the difference in income between variable costing income and full costing income would be $62,791. This is because the fixed costs would be spread over a smaller number of units, resulting in a higher per-unit fixed cost.

Leesburg Bags Produces Backpacks Leesburg Bags Produced 250,000 Backpacks for the Year and Sold