Aces, Inc., a manufacturer of tennis rackets, began operations this year. The co
ID: 2587502 • Letter: A
Question
Aces, Inc., a manufacturer of tennis rackets, began operations this year. The company produced 6,000 rackets and sold 4,900. At year-end, the company reported the following income statement using absorption costing. Sales (4,900 × $90) $ 441,000 Cost of goods sold (4,900 × $38) 186,200 Gross margin $ 254,800 Selling and administrative expenses 75,000 Net income $ 179,800 Production costs per tennis racket total $38, which consists of $25 in variable production costs and $13 in fixed production costs (based on the 6,000 units produced). Ten percent of total selling and administrative expenses are variable. Compute net income under variable costing.
Explanation / Answer
Sales 441000 Variable production costs 122500 Contribution margin 318500 Fixed costs: Variable production costs 78000 Selling and administrative expenses 75000 153000 Net income under variable costing 165500