Belle Company reports the following information for the current year. All beginning inventory amounts equaled $0 this year. Units produced this year 25,000 units Units sold this year 17,500 units Direct materials $ 13 per unit Direct labor $ 15 per unit Variable overhead $ 3 per unit Fixed overhead $ 118,750 in total Belle Company's product is sold for $60 per unit a Variable selling and administrative expense is $2 per unit and fixed selling and administrative is $210,000 per year. Compute the net income under variable costing.

A variable costing is one of the costing approaches to determine the net income or net loss by considering the cost of the product is variable.

Given values for step 1:

Direct material cost per unit: $13

Direct labor cost per unit: $15

Variable overhead cost per unit: $3

Variable selling and admin cost per unit: $2

Step-1 Computation of product cost per unit in variable costing:

[tex]\rm\ Product \rm\ cost \rm\ per \rm\ unit =\rm\ Direct \rm\ material \rm\ cost + \rm\ Direct \rm\ labor \rm\ cost + \rm\ Variable \rm\ overhead \rm\ cost + \rm\ Variable \rm\ selling \rm\ and \rm\ admin \rm\ cost\\\rm\ Product \rm\ cost \rm\ per \rm\ unit=\$13 + \$15 + \$3 + \$2\\\rm\ Product \rm\ cost \rm\ per \rm\ unit=\$33[/tex]

Given values for step 2:

Product cost per unit: $33

Fixed cost: $118,750

Production units: 25,000

Sales units: 17,500

Computation of net income using variable costing:

A) Sales revenue (17,500 X $60) = $1,050,000

B) Variable Cost (25,000 X $33) = $ (825,000)

C) Contribution margin (A) - (B) = $225,000

D) Fixed cost: = $ (118,750)

E) Net Income (C) - (D) = $106,250

Therefore, by using the variable costing method, the amount of net income comes out to be $106,250.

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