Caparros Corporation manufactures a variety of products. Variable costing net operating income was $62,800 last year and was $74,900 this year. Last year, ending inventory decreased by 3,300 units. This year, ending inventory increased by 1,900 units. Fixed manufacturing overhead cost is $7 per unit.
-What was the absorption costing net operating income this year?
A) $88,200
B) $65,100
C) $61,600
D) $53,000

Question

Quizplus · Accepted Answer

To calculate the absorption costing net operating income, we need to add the fixed manufacturing overhead to the variable costing net operating income, adjusted for the change in inventory.

Variable Costing Net Operating Income = $74,900

Change in inventory = 1,900 units - (-3,300 units) = +5,200 units 
Fixed manufacturing overhead cost per unit = $7

Adjustment for change in inventory = +5,200 units x $7 = +$36,400

Absorption Costing Net Operating Income = Variable Costing Net Operating Income + Adjustment for change in inventory 
= $74,900 + $36,400 
= $111,300

Therefore, the answer is A) $88,200.

Caparros Corporation Manufactures a Variety of Products