T-shirt man is a direct marketer of popular t-shirts. Following is information a

ID: 2381028 • Letter: T

Question

T-shirt man is a direct marketer of popular t-shirts. Following is information about its revenue and cost structure:

Selling price: $15/t-shirt

Variable costs:

Production (manufacturing costs): $3/t-shirt

Selling & Administration (non-mfg costs): $1/t-shirt

Fixed costs:

Production (manufacturing costs): $1,000,000/year

Selling & Administration (non0mfg costs): $2,000,000/year

Assume 400,000 t-shirts are produced and 350,000 are sold in 2011. What is income under variable costing?

$975,000

$1,400,000

$850,000

$2,250,000

Income under variable costing = 350,000 x ( $15 - $3 - $1 - ( $1000000 + $2000000) / 350000 )

350000 ( 15 - 4 - 8.57143) = $849999.5 = $850000 (approx)

Hence option C is correct

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