Final answer:
The absorption NOI is $2,000 higher than variable NOI due to unsold inventory carrying a part of the fixed overhead. For the inventory purchases, the company is required to purchase $125,000 of inventory to meet the desired ending inventory after accounting for COGS and the beginning inventory.
Step-by-step explanation:
If a company produced 2,000 units but only sold 1,600 units and fixed manufacturing overhead (FMOH) for the period was $10,000, we need to calculate the difference between absorption and variable costing net operating income (NOI). Under absorption costing, the entire fixed manufacturing overhead is allocated to all units produced, hence part of it remains in inventory if not all produced units are sold. In this case, 400 units (2,000 produced - 1,600 sold) are still in inventory and carry a portion of the fixed overhead.
To calculate the fixed manufacturing overhead per unit: FMOH / Total Units Produced = $10,000 / 2,000 units = $5 per unit. Unsold inventory carries an overhead of 400 units x $5 per unit = $2,000. Since these are not expensed under absorption costing but are expensed under variable costing, the absorption NOI is $2,000 higher than variable NOI.
For a company with a beginning merchandise inventory of $25,000, a desired ending inventory of $50,000, and a budgeted cost of goods sold (COGS) of $100,000, the amount of required inventory purchases is calculated as follows:
- Desired Ending Inventory + Budgeted COGS - Beginning Inventory = Required Purchases
- $50,000 + $100,000 - $25,000 = $125,000
Therefore, the amount of required inventory purchases is $125,000.