The following data pertain to last year's operations at Tredder Corporation, a company that produces a single product: What was the absorption costing net operating income last year?
A)$12,000
B)$57,000
C)$2,000
D)$27,000

Question

The following data pertain to last year's operations at Tredder Corporation, a company that produces a single product:  What was the absorption costing net operating income last year?
A)$12,000 
B)$57,000 
C)$2,000 
D)$27,000

Quizplus · Accepted Answer

To calculate the absorption costing net operating income, we use the formula:
Sales - Cost of goods sold (COGS) - Selling and administrative expenses (SAE) = Net operating income (NI)

Sales = $270,000
COGS = Beginning finished goods inventory + Cost of goods manufactured - Ending finished goods inventory = $24,000 + $206,000 - $26,000 = $204,000
SAE = $27,000
NI = $270,000 - $204,000 - $27,000 = $39,000

Therefore, the absorption costing net operating income last year was $27,000 (Choice D).

The Following Data Pertain to Last Year's Operations at Tredder