Question

Mandato Corporation has provided the following data for its two most recent years of operation: Selling price per unit $ 50 Manufacturing costs: Variable manufacturing cost per unit produced: Direct materials $ 10 Direct labor $ 6 Variable manufacturing overhead $ 5 Fixed manufacturing overhead per year $ 72,000 Selling and administrative expenses: Variable selling and administrative expense per unit sold $ 5 Fixed selling and administrative expense per year $ 70,000 Year 1 Year 2 Units in beginning inventory 0 3,000 Units produced during the year 9,000 8,000 Units sold during the year 6,000 9,000 Units in ending inventory 3,000 2,000 The net operating income (loss) under absorption costing in Year 2 is closest to:

Answer 1

Answer:

$26,000

Explanation:

As per the data given in the question,

The net operating loss or income under absorption costing is presented below:

Sales $300,000 (6,000 × $50)

Less : Cost of goods sold  $174,000 (6,000 × $29)

Gross profit $126,000

Less: Selling and administrative exp :

Variable $30,000 (6,000 × $5)

Fixed $70,000

Total $100,000

Net operating income $26,000 ($126,000 - $100,000)

Hence, Net operating income under absorption costing is $26,000.

We simply deduct all expenses from the sales revenue so that the net operating could arrive