Salley Corporation produces a single product. Last year, the company had net operating income of $40,000 using variable costing. Beginning and ending inventories were 22,000 and 27,000 units, respectively. If the fixed manufacturing overhead cost was $3 per unit both last year and this year, what was the net operating income using absorption costing

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Tabby

Business

13 April, 13:35

Salley Corporation produces a single product. Last year, the company had net operating income of $40,000 using variable costing. Beginning and ending inventories were 22,000 and 27,000 units, respectively. If the fixed manufacturing overhead cost was $3 per unit both last year and this year, what was the net operating income using absorption costing

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Wendy Hudson · Answer 1

Net operating income (absorption) = $55,000

Explanation:

Giving the following information:

Last year, the company had net operating income of $40,000 using variable costing. The beginning and ending inventories were 22,000 and 27,000 units, respectively. If the fixed manufacturing overhead cost was $3 per unit.

The difference between the absorption costing and the variable costing methods is that the first one includes the fixed manufacturing overhead in the product cost.

Some of the fixed overhead will be included in ending inventory, increasing the net operating income:

Net operating income (absorption) = 40,000 + 5,000units*3

Net operating income (absorption) = $55,000