Question

In: Accounting

Aquatic Pets Inc. makes 100-gallon plexiglass aquariums. They reported the following financial information for last year:...

Aquatic Pets Inc. makes 100-gallon plexiglass aquariums. They reported the following financial information for last year:

Direct labor:	6,000 hours @ $20/hr
Production manager salary:	$50,000
Factory rent:	$24,000
Equipment maintenance:	$10,000 (considered a variable expense)
Equipment depreciation:	$10,000
Production for the year:	12,000 units
Total Revenue:	$1,000,000
Total aquariums sold during the period:	15,000 units
Operating Income under absorption costing (after non-production expenses):	$204,000

Assume that the fixed costs were the same on a per-unit basis during the prior period.

What would Operating Income be under variable costing? (Round per-unit costs to the nearest cent.

Select one:

a. $180,510

b. $227,490

c. $183,000

d. $225,000

e. None of the above

Expert Solution

Option D ($ 225,000) is the Correct Answer to the Problem.

Supporting Work

Fixed Manufacturing Overhead Costs = Production Manager Salary + Factory Rent + Equipment Depreciation

Production Manager Salary = $ 50,000

Factory Rent = $ 24,000

Equipment Depreciation = $ 10,000

Fixed Manufacturing Overhead Costs = 50,000 + 24,000 + 10,000

Fixed Manufacturing Overhead Cost = $ 84,000

Fixed Manufacturing Overhead per Unit Produced = Fixed Manufacturing Overhead Costs / Units Produced

Units Produced = 12,000

Fixed Manufacturing Overhead Costs = $ 84,000

Fixed Manufacturing Overhead Cost per Unit = 84,000 / 12,000

Fixed Manufacturing Overhead Cost per Unit = $ 7 per Unit

As stated in Question Fixed Costs per unit were same in last year that of Current Year

So Fixed Costs which got Deferred in Previous Year = 3,000 Units * Fixed Manufacturing Overhead per Unit

= 3,000 * $ 7 per Unit

= $ 21,000

As the Production were 12,000 Units whereas Sales were 15,000 Units which means 3,000 Units from Ending Inventory of Last Year has been used.

Variable Costs Income of Current Year = Absorption Costing Income for Current Year + Fixed Manufacturing Overhead Costs deferred in Previous Year

= 204,000 + 21,000

Variable Costing Income for Current Year= $ 225,000

ekkarill92 answered 2 years ago

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