Answer:
Net operating income= 374,500
Explanation:
Giving the following information:
Direct materials= $5
Direct labor= $3 per unit
Variable overhead= $4 per unit
Fixed overhead= $189,000.
The company produced 21,000 units, and sold 15,500 units
<u>Under the absorption costing method, the unitary product cost is calculated using the direct material, direct labor, and total unitary overhead.</u>
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First, we need to calculate the unitary fixed overhead:
Unitary fixed overhead= 189,000/21,000= $9
Now, we can calculate the unitary product cost
unitary product cost= 5+3+4+9= $21
<u>We need to determine the sales, therefore, we will reverse engineer the variable costing income statement:</u>
Net operating income= 325,000
Fixed costs= 189,000
Variable costs= (5+3+4)*15,500= 186,000
=total sales= $700,000
Finally, we determine the net operating income under absorption costing:
Sales= 700,000
Cost of goods sold= (21*15,500)= (325,500)
Net operating income= 374,500
