Bellue Incorporated manufactures a single product. Variable costing net operating income was $96,300 last year and its inventory decreased by 2,600 units. Fixed manufacturing overhead cost was $1 per unit for both units in beginning and in ending inventory. What was the absorption costing net operating income last year?
A) $2,600
B) $93,700
C) $96,300
D) $98,900

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead is included in the cost of inventory. Since inventory decreased by 2,600 units, the fixed overhead cost of these units ($2,600) was expensed under absorption costing, reducing net operating income by $2,600 compared to variable costing. Thus, absorption costing net operating income is $96,300 - $2,600 = $93,700.

Bellue Incorporated Manufactures a Single Product