Wind fall, a manufacturer of leaf blowers, began operations this year. during this year, the company produced 10,000 leaf blowers and sold 8,500. at year-end, the company reported the following income statement using absorption costing: sales (8,500 × $45) $ 382,500 cost of goods sold (8,500 × $20) 170,000 gross margin $ 212,500 selling and administrative expenses 60,000 net income $ 152,500 production costs per leaf blower total $20, which consists of $16 in variable production costs and $4 in fixed production costs (based on the 10,000 units produced). fifteen percent of total selling and administrative expenses are variable. compute net income under variable costing. multiple choice $146,500 $158,500 $237,500 $206,500 $246,500

Option (a) $146,500 is correct.

Explanation:

Company produced = 10,000 leaf blowers

Company produced sold =  8,500 leaf blowers

Income statement of year-end:

Sales = $ 382,500

Cost of goods sold = 170,000

Gross margin = $ 212,500

Selling and administrative expenses = 60000

Net income = $ 152,500

Production costs per leaf blower total = $20

Variable cost of goods sold = 8500 × $16 = $136000

Variable selling and administrative expenses = 15% of 60000 = $9000

Fixed production Cost = 10000 × $4 = 40000

Fixed Selling & Administrative expenses = (100% - 15%) of 60000 = $51000

∴ Net income under variable costing = sales - Variable cost of goods sold - Variable selling and administrative expenses - Fixed production Cost - Fixed Selling & Administrative expenses

= 382,500 - 136000 - 9000 - 40000 - 51000

= 146500

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