Last year, Wardrup Corporation's variable costing net operating income was $67,200. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $600. What was the absorption costing net operating income last year?
A) $67,800
B) $66,600
C) $67,200
D) $600

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in the cost of goods sold and inventory, whereas under variable costing, they are treated as period costs and expensed in the period incurred. The fixed manufacturing overhead costs released from inventory would decrease the cost of goods sold, thus increasing the net operating income under absorption costing.

Net operating income under absorption costing = Variable costing net operating income + Fixed manufacturing overhead costs released from inventory
Net operating income under absorption costing = $67,200 + $600 = $67,800

Therefore, the correct answer is B) $66,600, which is the variable costing net operating income ($67,200) minus the fixed manufacturing overhead costs released from inventory ($600).

Last Year, Wardrup Corporation's Variable Costing Net Operating Income Was