Question

The cost of goods sold for Dillon Manufacturing for the year was $145,000. The January 1 Finished Goods Inventory balance was $27,000 and the December 31 Finished Goods Inventory balance was $34,000.

Dillon also had revenues of $280,000 and operating expenses of $84,000.

Calculate Operating Income for the year.

Answer 1

To calculate the Operating Income for Dillon Manufacturing, the Gross Profit was determined to be $142,000 after adjusting the Cost of Goods Sold for inventory changes. From this, operating expenses of $84,000 were subtracted, resulting in an Operating Income of $58,000 for the year.

Step-by-step explanation:

To calculate the Operating Income for Dillon Manufacturing for the year, we need to determine the company's Gross Profit first and then subtract the operating expenses from it. Gross Profit is found by subtracting the Cost of Goods Sold (COGS) from the Revenues, and COGS is adjusted for the change in Finished Goods Inventory. Here's the calculation:

• Revenues: $280,000
• Beginning Finished Goods Inventory (January 1): $27,000
• Ending Finished Goods Inventory (December 31): $34,000
• Operating Expenses: $84,000

Adjusted COGS = COGS + Beginning Inventory - Ending Inventory

Adjusted COGS = $145,000 + $27,000 - $34,000 = $138,000

Gross Profit = Revenues - Adjusted COGS

Gross Profit = $280,000 - $138,000 = $142,000

Operating Income = Gross Profit - Operating Expenses

Operating Income = $142,000 - $84,000 = $58,000

Therefore, the Operating Income for Dillon Manufacturing for the year is $58,000.