Which of the following is not a way to calculate Absorption Net Income?
A) Gross Profit - Non-Manufacturing Costs
B) Variable Net Income + (Change in Inventory units x Fixed Overhead Rate)
C) Contribution Margin - Selling and Administrative Expenses
D) All of the above equal Absorption Net Income
E) None of the above equal Absorption Net Income

Question

Quizplus · Accepted Answer

Absorption Net Income is calculated by taking into account all manufacturing costs, including both variable and fixed overheads. Option C, which uses Contribution Margin minus Selling and Administrative Expenses, describes a method for calculating Net Operating Income under Variable or Direct Costing, not Absorption Costing. Absorption Costing includes fixed manufacturing overheads in the cost of goods sold and hence in the inventory values, which is not reflected in the calculation method described in option C.

Which of the Following Is Not a Way to Calculate