Question

Last year, Tinklenberg Corporation's variable costing net operating income was $52,400 and its inventory decreased by 1,400 units. Fixed manufacturing overhead cost was $8 per unit for both units in beginning and in ending inventory. What was the absorption costing net operating income last year?

a. $11,200
b. $63,600
c. $52,400
d. $41,200

Answer 1

Answer:

The correct option is D,$41,200

Explanation:

The fact that inventory reduced by 1,400 units implies that the  fixed costs of 1,400 units added to closing inventory under absorption costing method has now been released into income statement as an additional cost in the current year,as result profit under absorption costing method reduce by the increased fixed costs:

net operating income under variable costing   $52,400

less:additional fixed costs (1,400*$8)                  ($11,200)

Profit under absorption costing method              $41,200

The correct option is D,$41,200