Farris 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) $2,900
B) $11,300
C) $17,400
D) $14,500

Question

Farris 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) $2,900 
B) $11,300 
C) $17,400 
D) $14,500

Quizplus · Accepted Answer

Net operating income under absorption costing can be calculated as follows:
Sales revenue $83,000
Cost of goods sold:
Beginning inventory (2,200 units) ($11,000)
Variable manufacturing costs (6,400 units x $4) ($25,600)
Fixed manufacturing costs ($30,000 + $2,000) ($32,000)
Total cost of goods sold ($68,600)
Gross margin $14,400
Selling and administrative expenses ($7,000)
Net operating income $7,400
Therefore, the net operating income under absorption costing is $17,400 ($7,400 + $10,000 fixed manufacturing costs deferred to inventory).

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