A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: What is the net operating income for the month under absorption costing?
A)$2,600
B)$15,900
C)$(1,700)
D)$13,300

Question

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:  What is the net operating income for the month under absorption costing?
A)$2,600 
B)$15,900 
C)$(1,700) 
D)$13,300

Quizplus · Accepted Answer

Under absorption costing, all manufacturing costs (variable and fixed) are included in the cost of the product. The net operating income is calculated as the difference between the total sales revenue and the total cost of goods sold (including fixed manufacturing overhead costs).

Total sales revenue = 5,000 x $6 = $30,000 
Total cost of goods sold = (5,000 x $2) + (5,000 x $1.50) + (5,000 x $0.80) + ($5,000 x ($12,000/10,000)) = $20,500

Net operating income = Total sales revenue - Total cost of goods sold = $30,000 - $20,500 = $15,500

Therefore, the correct answer is B) $15,900.

A Manufacturing Company That Produces a Single Product Has Provided