Elison Corporation, which has only one product, has provided the following data concerning its most recent month of operations: What is the net operating income for the month under absorption costing?
A) $8,700
B) $5,700
C) $14,400
D) $(12,000)

Question

Elison Corporation, which has only one product, has provided the following data concerning its most recent month of operations:  What is the net operating income for the month under absorption costing?
A) $8,700 
B) $5,700 
C) $14,400 
D) $(12,000)

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in the cost of goods sold. Therefore, the net operating income can be calculated as follows:

Sales - Cost of Goods Sold (based on absorption costing) - Selling and Administrative Expenses = Net Operating Income

$75,000 - ($40,000 + $12,000 + $8,000) - $10,600 = $14,400

Elison Corporation, Which Has Only One Product, Has Provided the Following