A company that produces a single product had a net operating income of $88,000 u

Question

A company that produces a single product had a net operating income of $88,000 using variable costing and a net operating income of $121,390 using absorption costing. Total fixed manufacturing overhead was $57,630 and production was 11,300 units both this year and last year. Last year was the first year of operations. Between the beginning and the end of the year, the inventory level: (Do not round intermediate computation and round your final answer to nearest whole number.)

increased by 33,390 units

increased by 6,547 units

decreased by 33,390 units

decreased by 6,547 units

A company that produces a single product had a net operating income of $88,000 using variable costing and a net operating income of $121,390 using absorption costing. Total fixed manufacturing overhead was $57,630 and production was 11,300 units both this year and last year. Last year was the first year of operations. Between the beginning and the end of the year, the inventory level: (Do not round intermediate computation and round your final answer to nearest whole number.)

Explanation / Answer

Fixed manufcturing overhead per unit = 57630 /11300 = 5.10

Net operating income as per absorption costing =Net income as per variable costing +(Ending units *Dixed overhead rate)

121390 = 88000+ (5.1 *x)

   121390-88000 = 5.1x

       x( Ending units )= 33390/5.1= 6547 units

correct option is "B" - increased by 6,547 units

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