Question

Chilly Chips, Inc., a producer of ice cream, began operations this year. During this year, the company produced 160,000 cartons of ice cream and sold 145,000. At year-end, the company reported the following income statement using absorption costing:
Sales (145,000 $6.50) $942,500
Cost of goods sold (145,000 $3.50) 507,000
Gross margin $435,000
Selling and administrative expenses 252,000
Net income $183,000
Production costs per carton total $3.50, which consists of $2.30 in variable production costs and $1.20 in fixed production costs (based on the 16,000 units produced). Sixty percent of total selling and administrative expenses are variable. Compute net income under variable costing.
$183,000 - ($1.20 15,000 units) = $165,000

Answer

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