Ramon Company reported the following units of production and sales for June and July: $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Units }$
$\begin{array}{llr}
\text { Month } & \text { Produced } & \text { Sold } \
\hline \text { June } & 100,000 & 90,000 \
\text { July } & 100,000 & 105,000
\end{array}$ Net income under absorption costing for June was $40,000; net income under variable costing for July was $50,000.Fixed manufacturing costs were $600,000 for each month.
How much was net income for June using variable costing?

Question

Ramon Company reported the following units of production and sales for June and July:  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Units }$
$\begin{array}{llr}
\text { Month } & \text { Produced } & \text { Sold } \
\hline \text { June } & 100,000 & 90,000 \
\text { July } & 100,000 & 105,000
\end{array}$  Net income under absorption costing for June was $40,000; net income under variable costing for July was $50,000.Fixed manufacturing costs were $600,000 for each month.
How much was net income for June using variable costing?

Quizplus · Accepted Answer

Under variable costing, fixed manufacturing costs are treated as period costs and are not included in the cost of goods sold. Therefore, net income for June using variable costing would be:
Net income = Sales - Variable Cost - Fixed Costs
Since fixed costs were $600,000 and net income was $40,000, we can calculate variable costs as:
$40,000 = 11,000Q - 7,000Q - $600,000
$40,000 = 4,000Q - $600,000
$640,000 = 4,000Q
Q = 160
Therefore, sales for June were:
Sales = 11,000Q = 11,000 x 160 = $1,760,000
And variable costs for June were:
Variable Cost = 7,000Q = 7,000 x 160 = $1,120,000
So, net income for June using variable costing would be:
Net income = $1,760,000 - $1,120,000 - $600,000 = ($20,000)

Ramon Company Reported the Following Units of Production and Sales \quad

Ramon Company Reported the Following Units of Production and Sales $\quad$