Last year, Rassel Corporation's variable costing net operating income was $63,200. Fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $31,900. What was the absorption costing net operating income last year?
A)$31,300
B)$95,100
C)$63,200
D)$31,900

Question

Quizplus · Accepted Answer

Under variable costing, fixed manufacturing overhead costs are treated as period expenses and are not included in product costs. Therefore, the variable costing net operating income of $63,200 does not include any amount for fixed manufacturing overhead costs.

However, under absorption costing, fixed manufacturing overhead costs are included in product costs as part of inventory and only expensed when the product is sold. In this case, $31,900 of fixed manufacturing overhead costs were deferred in inventory under absorption costing.

To calculate the absorption costing net operating income, we need to add the deferred fixed manufacturing overhead costs to the variable costing net operating income:

$63,200 (variable costing net operating income) + $31,900 (deferred fixed manufacturing overhead costs) = $95,100

Therefore, the absorption costing net operating income last year was $95,100.

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