Use the Following Information for Items
the Colin Division $\quad$

question 47

Short Answer

Use the following information for items
The Colin Division of Mochrie Company sells its product for $30 per unit.Variable costs per unit are: manufacturing, $12; and selling and administrative, $2.Fixed costs are: $200,000 manufacturing overhead, and $50,000 selling and administrative.There was no beginning inventory.Expected sales for next year are 40,000 units.Ryan Stiles, the manager of the Colin Division, is under pressure to improve the performance of the Division.As he plans for next year, he has to decide whether to produce 40,000 units or 50,000 units.
-What would the net income be under variable costing for each alternative? $\quad$$\quad$$\quad$$\underline{40,000 \text { units }} \quad \underline{50,000 \text { units }}$
a) $\quad$$\quad$$\quad$$\quad$ $390.00 $\quad$$\quad$$\quad$ $390.00
b) $\quad$$\quad$$\quad$$\quad$ $390.00 $\quad$$\quad$$\quad$ $430.00
c) $\quad$$\quad$$\quad$$\quad$ $390.00 $\quad$$\quad$$\quad$ $440.00
d) $\quad$$\quad$$\quad$$\quad$ $430.00 $\quad$$\quad$$\quad$ $390.00

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Definitions:

Corporate Tax Rate

The proportion of a company's profits that is owed to the government as tax.

Fixed Costs

Costs that do not change with the level of production or sales, such as rent, salaries, and loan payments.

Operating Leverage

A measure of how sensitive a company's operating income is to changes in revenue, indicating the degree of fixed versus variable costs.