Question

What is corporation's net operating income under variable costing in the first year?

Answer 1

Under variable costing, the company's net operating income for the year would be:

$ $81,900$ higher than under absorption costing

$ $27,846$ lower than under absorption costing

$ $27,846$ higher than under absorption costing

$ $81,900$ lower than under absorption costing

Units in ending inventory = Units in beginning inventory + Units produced - Units sold= $0 units + 34,060 units - 28,600 units = 5,460 units$

Fixed manufacturing overhead per unit = Fixed manufacturing overhead ÷ Units produced= $510,900/34,060 units = 15 per unit$

Manufacturing overhead deferred in (released from) inventory = Fixed manufacturing overhead in ending inventory - Fixed manufacturing overhead in beginning inventory = $(15 per unit * 5,460 units)- 0 = 81,900$

Therefore, variable costing net operating income will be $ $81,900$ lower than absorption costing net operating income.

Are net operating income and EBIT the same thing?

Operating income (EBIT), also known as earnings before interest and tax, is a measurement of a company's profit from routine operations, excluding interest and tax.

Net operating income, operating profit, or net operating profit are additional names for EBIT.

NOI is a crucial comparative figure and profitability metric used only for assets of commercial real estate that generate revenue. By accounting rules, NOI differs from net profit or actual profitability.

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