Question

Last year, Tinklenberg Corporation's variable costing net operating income was $52,400 and its inventory decreased by 1,400 units. Fixed manufacturing overhead cost was $8 per unit for both units in beginning and in ending inventory. What was the absorption costing net operating income last year?

Answer 1

Answer:

the absorption costing net operating income last year is  $41,200

Explanation:

Absorption Costing Net Operating Income for last year is determined by reconciling the Variable Costing Income to Absorption Costing Income.

Calculation of Absorption Costing Net Operating Income

Variable Costing Income                                             $52,400

Less Decrease in Inventory ( 1,400 × $8)                   ($11,200)  

Absorption Costing Net Operating Income               $41,200

Absorption Costing Net Operating Income will be lower than Variable Costing Income.

Answer 2

Answer:

Net operating income  under absorption costing = $41,300

Explanation:

The difference between variable costing and profit under absorption costing is simply the value of the change in inventory.

Usually, a decrease in inventory would cause profit under absorption costing to be lower . This is so because cost of goods sold would become higher leading to a lower profit

Difference in profit = POAR × change inventory

                               =$8 × 1,400 = $11,200

Absorption costing profit = Variable costing profit - Difference in profit

               =$52,400 - $11,200

              = $41,300