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

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.