During its first year of operations, Carlos Manufacturing Corporation incurred the following costs to produce 8, 000 units of its only product: The company also incurred the following costs in selling 7, 500 units of product during its first year: Assume that direct labor is a variable cost. If Carlos' absorption costing net operating income for this first year is $118, 125, what would its variable costing net operating income be for this first year?
A)$86, 000
B)$90, 000
C)$104, 125
D)$146, 250

Question

During its first year of operations, Carlos Manufacturing Corporation incurred the following costs to produce 8, 000 units of its only product:  The company also incurred the following costs in selling 7, 500 units of product during its first year:  Assume that direct labor is a variable cost. If Carlos' absorption costing net operating income for this first year is $118, 125, what would its variable costing net operating income be for this first year?
A)$86, 000 
B)$90, 000 
C)$104, 125 
D)$146, 250

Quizplus · Accepted Answer

Fixed manufacturing overhead per unit = $450, 000 ÷ 8, 000 units produced = $56.25 per unit
Units in ending inventory = Units in beginning inventory + Units produced - Units sold
= 0 units + 8, 000 units - 7, 500 units = 500 units
Manufacturing overhead deferred in (released from)inventory = Fixed manufacturing overhead in ending inventory - Fixed manufacturing overhead in beginning inventory = ($56.25 per unit × 500 units)- $0 = $28, 125
 11eaa0c8_95c0_b8e3_9cb2_ff2ac9bafdd0_TB2487_00 Variable costing net operating income + $28, 125 = $118, 125
Variable costing net operating income = $118, 125 - $28, 125 = $90, 000

During Its First Year of Operations, Carlos Manufacturing Corporation Incurred