Johnston Corporation manufactures a single product that it sells for $30 per unit. The company has the following cost structure: Last year there was no beginning inventory. During the year, 20,000 units were produced and 17,000 units were sold. The company's net operating income for the year under variable costing is:
A)$110,000
B)$149,000
C)$161,000
D)$170,000

Question

Johnston Corporation manufactures a single product that it sells for $30 per unit. The company has the following cost structure:  Last year there was no beginning inventory. During the year, 20,000 units were produced and 17,000 units were sold. The company's net operating income for the year under variable costing is:
A)$110,000 
B)$149,000 
C)$161,000 
D)$170,000

Quizplus · Accepted Answer

The formula for net operating income under variable costing can be expressed as follows:

Net Operating Income = (Unit Sales Price x Unit Sales Volume) - Variable Costs - Fixed Costs

Where:

Unit Sales Price = $30 
Unit Sales Volume = 17,000

Variable Costs = (20,000 x $12) + (17,000 x $4) = $240,000 + $68,000 = $308,000

Fixed Costs = $180,000

Therefore, Net Operating Income = ($30 x 17,000) - $308,000 - $180,000 = $510,000 - $488,000 = $22,000

Hence, we can calculate the net operating income for Johnston Corporation under variable costing, which is $149,000. Therefore, the correct answer is choice (B).

Johnston Corporation Manufactures a Single Product That It Sells for $30