Tustin Corporation has provided the following data for its two most recent years of operation: The net operating income (loss) under variable costing in Year 1 is closest to:
A) $420,000
B) $480,000
C) $139,000
D) $159,000

Question

Tustin Corporation has provided the following data for its two most recent years of operation:  The net operating income (loss) under variable costing in Year 1 is closest to:
A) $420,000 
B) $480,000 
C) $139,000 
D) $159,000

Quizplus · Accepted Answer

Under variable costing in Year 1, the net operating income was $319,000. In Year 2, it was $480,000. The difference between the two is an increase of $161,000. This increase is due solely to the increase in units sold (100,000 in Year 1 vs. 150,000 in Year 2), which means that the variable cost per unit remained constant at $10 per unit. Therefore, if the company had sold 100,000 units in Year 2, the net operating income under variable costing would have been the same as in Year 1, which is $319,000. However, the company actually sold 150,000 units in Year 2, which means that the net operating income under variable costing was $139,000 higher in Year 2 than in Year 1 ($480,000 - $319,000 = $161,000; $161,000 / 1.5 = $107,333; $319,000 + $107,333 = $426,333). Therefore, the closest answer choice is C, $139,000.

Tustin Corporation Has Provided the Following Data for Its Two