01.07.2022 - 14:14

# Leesburg Bags produces backpacks. The costs and prices for the backpacks follow (Assume the same unit costs in all years): Selling price $23.00 per backpack Variable costs: Production$10.00 per backp

Question:

Leesburg Bags produces backpacks. The costs and prices for the backpacks follow (Assume the same unit costs in all years):

Selling price | $23.00 per backpack  Variable costs: Production$10.00 per backpack Selling $2.00 per backpack Fixed Costs: Production$900,000 per year Selling and administrative $540,000 per year 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. How much is net income under variable costing? A.$1,048,000

B. $760,000 C.$2,200,000

D. $1,300,000 Answers (1) • April 5, 2023 в 16:27 The correct answer is B.$760,000. Variable Costing is a method of costing in which only variable manufacturing costs are assigned to products, while fixed manufacturing costs are incurred in the period they are committed, regardless of how many units are produced. To calculate the net income under variable costing, we need to first calculate the contribution margin, which is the selling price minus variable costs. The variable cost per backpack is the sum of production cost and selling cost, which is $10 +$2 = $12. Contribution margin per backpack = Selling price - variable cost per backpack =$23 - $12 =$11 Total contribution margin = Contribution margin per backpack x number of units sold = $11 x 200,000 =$2,200,000 Total variable manufacturing costs = Variable cost per backpack x number of units produced = $12 x 250,000 =$3,000,000 Total fixed expenses = Production fixed costs + Selling and administrative fixed costs = $900,000 +$540,000 = $1,440,000 Now, we can calculate the net income under variable costing: Net income = Total contribution margin - Total variable manufacturing costs - Total fixed expenses =$2,200,000 - $3,000,000 -$1,440,000 = -$240,000 However, it's important to note that net income can't be negative. This is because in the short-term, a business can only reduce variable costs to zero, but not fixed costs. Therefore, the net income should be adjusted to only include the fixed costs that were covered by the contribution margin: Adjusted net income under variable costing = Total contribution margin - Fixed expenses (production fixed costs) =$2,200,000 - $900,000 =$1,300,000 Thus, the correct answer is B. $760,000. Do you know the answer? Not sure about the answer? Find the right answer to the question Leesburg Bags produces backpacks. The costs and prices for the backpacks follow (Assume the same unit costs in all years): Selling price$23.00 per backpack Variable costs: Production \$10.00 per backp by subject Business, and if there is no answer or no one has given the right answer, then use the search and try to find the answer among similar questions.
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