Improve Performance Decision Making: Colin Division Net Income Calculation

What would the net income be under variable costing for each alternative?

a. 40000 units 56000 units b. $624000 $683200 c. $672000 $624000 d. $624000 $624000 e. $624000 $860000

Final answer:

The net income under variable costing for 40000 units is $624000 and for 56000 units, it is $860000.

Explanation:

The calculation for net income under variable costing involves deducting the total variable costs and the total fixed costs from the total sales.

For 40000 units: Total variable cost is ($13 manufacturing + $4 selling and administrative) x 40000 = $680000. Total fixed cost is $240000 + $56000 = $296000. Total sales is $40 x 40000 = $1600000. Therefore, the net income under variable costing for 40000 units = Total Sales – Total Variable Cost – Total Fixed Cost = $1600000 - $680000 - $296000 = $624000.

For 56000 units, the calculations remain the same except the Total Variable Cost and Total Sales: Total variable cost = ($13 manufacturing + $4 selling and administrative) x 56000 = $952000 and Total sales = $40 x 56000 = $2240000. Therefore, the net income for 56000 units = Total Sales – Total Variable Cost – Total Fixed Cost = $2240000 - $952000 - $296000 = $860000.