Backyards,Inc.,sells lawn furniture.Selected financial information for the most recent year follows: Beginning merchandise inventory on January 1 was $32,000.
Ending merchandise inventory on December 31 was $37,000.
Purchases during the year were $101,000.
Selling and administrative expenses were $75,000.
Sales for year were $257,000.
-
What was operating income for the year?

Question

Quizplus · Accepted Answer

Operating income is calculated as Sales minus Cost of Goods Sold (COGS) and Selling and Administrative Expenses. COGS is calculated as Beginning Inventory plus Purchases minus Ending Inventory. So, COGS = $32,000 + $101,000 - $37,000 = $96,000. Operating Income = $257,000 - $96,000 - $75,000 = $86,000.