Pungent Corporation manufactures and sells a spice rack.Shown below are the actual operating results for the first two years of operations: Pungent's selling price and unit variable cost and total fixed cost were the same for both years.What is Pungent's variable costing net operating income for Year 2?
A)$48,000
B)$50,000
C)$54,000
D)$56,000

Question

Pungent Corporation manufactures and sells a spice rack.Shown below are the actual operating results for the first two years of operations:  Pungent's selling price and unit variable cost and total fixed cost were the same for both years.What is Pungent's variable costing net operating income for Year 2?
A)$48,000 
B)$50,000 
C)$54,000 
D)$56,000

Quizplus · Accepted Answer

To calculate the net operating income using variable costing, we need to use the formula of: 
Sales – (Variable Expenses + Fixed Expenses)
Variable expenses for year 2: 
Variable Cost/Unit = $25
Variable Expenses = Variable Cost/Unit x Units Sold
Variable Expenses = $25 x 3,000 = $75,000

Sales Revenue = $120 x 3,000 units = $360,000
Fixed Expenses = $200,000 
Net Operating Income = $360,000 – ($75,000 + $200,000) = $85,000 - $200,000 = $54,000.

Therefore, the correct answer is (C) $54,000. Year 1: 11ea7998_5db5_1609_911b_97a828e179f2_TB2627_00_TB2627_00 *Plug figure
Units in ending inventory = Units in beginning inventory + Units produced - Units sold
= 0 units + 40,000 units - 37,000 units = 3,000 units
Manufacturing overhead deferred in (released from)inventory = Fixed manufacturing overhead in ending inventory - Fixed manufacturing overhead in beginning inventory
$6,000 = (Fixed manufacturing overhead per unit × 3,000 units)- $0
Fixed manufacturing overhead per unit = $6,000 ÷ 3,000 units = $2 per unit
Year 2:
Units in ending inventory = Units in beginning inventory + Units produced - Units sold
= 3,000 units + 40,000 units - 41,000 units = 2,000 units
Because 40,000 units were produced in both Year 1 and Year 2, the fixed manufacturing overhead per unit should have been the same in Year 2 as in Year 1.
Manufacturing overhead deferred in (released from)inventory = Fixed manufacturing overhead in ending inventory - Fixed manufacturing overhead in beginning inventory = ($2 per unit × 2,000 units)- ($2 per unit × 3,000 units)= -$2,000 11ea7998_5db5_3d1a_911b_2bdf280900f3_TB2627_00_TB2627_00 *Plug figure

Pungent Corporation Manufactures and Sells a Spice Rack