Bella Ltd has operated for 2 years. During that time it produced 1,000 units in year 1 and 800 in year 2, while sales were 800 units in year 1 and 900 in year 2. Variable production costs were $8 per unit during both years. The company uses last-in, first-out (LIFO) for inventory costing. The absorption costing income statements for these 2 years were: Operating profit for year 2 using variable costing would be
A) $1,000
B) $1,600
C) $4,000
D) $1,450

Question

Quizplus · Accepted Answer

To calculate the operating profit using variable costing, we need to use the following formula:

Operating Profit = Sales - Variable Costs - Fixed Costs

First, we need to calculate the variable costs for year 2:

Variable Costs = Cost per unit x Number of units produced

Variable Costs = $8 x 800

Variable Costs = $6,400

Now, we can calculate the operating profit for year 2:

Operating Profit = Sales - Variable Costs - Fixed Costs

Operating Profit = $8,000 - $6,400 - $150

Operating Profit = $1,450

Therefore, the correct answer is D) $1,450.

Bella Ltd Has Operated for 2 Years