Rede Inc. manufactures a single product. Variable costing net operating income was $63,800 last year and its inventory decreased by 300 units. Fixed manufacturing overhead cost was $4 per unit for both units in beginning and in ending inventory. What was the absorption costing net operating income last year?
A)$65,000
B)$1,200
C)$63,800
D)$62,600

Question

Quizplus · Accepted Answer

When inventory decreases, absorption costing net operating income is lower than variable costing net operating income by the fixed manufacturing overhead cost per unit multiplied by the decrease in inventory. Here, $4 per unit * 300 units = $1,200. Thus, $63,800 - $1,200 = $62,600.

Rede Inc Manufactures a Single Product