Blindhawk, Inc. sells towels that have the following cost characteristics: Selling price $10 per towel Variable...

Blindhawk, Inc. sells towels that have the following cost characteristics: Selling price $10 per towel Variable cost per unit: Production $ 3 Selling & Administrative $ 1 Fixed costs: Production $40,000 per year Selling & Administrative $60,000 per year 4. If 25,000 towels were produced during the year and 20,000 towels were sold, what would be Blindhawk’s net income under variable costing? (There is no beginning inventory.) A. $28,000 B. $120,000 C. $60,000 D. $20,000 5. If 25,000 towels were produced during the year and 20,000 towels were sold, what would be Blindhawk’s net income under absorption costing? (There is no beginning inventory.) A. $28,000 B. $120,000 C. $60,000 D. $20,000

Expert Solution

4
Sales revenue		200000	=20000*10
Less: Variable costs
Variable cost of goods sold	60000		=20000*3
Variable Selling & Administrative	20000		=20000*1
Total Variable costs		80000
Contribution margin		120000
Fixed costs:
Production	40000
Selling & Administrative	60000
Total Fixed costs		100000
Net income under variable costing		20000

Option D $20,000 is correct

5
Sales revenue		200000	=20000*10
Less: Cost of goods sold		92000	=(200003)+(4000020000/25000)
Gross margin		108000
Less: Selling & Administrative costs		80000	=60000+(20000*1)
Net income under absorption costing		28000

Option A $28,000 is correct

ekkarill92 answered 2 years ago

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