Shrover Began Business at the Start of the Current Year

question 66

Multiple Choice

Shrover began business at the start of the current year. The company planned to produce 40,000 units, and actual production conformed to expectations. Sales totalled 37,000 units at $42 each. Costs incurred were: $\begin{array} { | l | r | } \hline \text { Fixed manufacturing overhead } & \$ 240,000 \\\hline \text { Fixed selling and administrative cost } & 140,000 \\\hline \text { Variable manufacturing cost per unit } & 19 \\\hline \text { Variable selling and administrative cost per unit } & 7 \\\hline & \\\hline\end{array}$ If there were no variances, Shrover's variable-costing net income would be:

• A)$155,000.
• B)$212,000.
• C)$240,500.
• D)$452,000.
• E)$592,000.

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Definitions:

Diminishing Returns

An economic principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, begins to decrease.

Marginal Cost

The change in total production cost that arises when the quantity produced is incremented by one unit.

Fixed Cost

Expenses that do not change in proportion to the activity of a business, such as rent, salaries, and loan payments.

Variable

A variable is an element, feature, or factor that is liable to vary or change; in mathematics and statistics, it's a quantity that can assume any of a set of values.