Question

"Bellue Inc. manufactures a single product. Variable costing net operating income was $93,400 last year and its inventory decreased by 2,300 units. Fixed manufacturing overhead cost was $1 per unit for both units in beginning and in ending inventory. What was the absorption costing net operating income last year?"

Answer 1

The answer is $91,000

Step-by-step explanation:

Solution

Given that:

Net Operating Income as per Variable Costing = $93,400

Less: Fixed manufacturing overhead released from Inventory (2300*$1)= $2300

Net Operating Income as per Absorption costing = $91,000

Hence Net operating income in absorption costing is $ 91,000

The difference in Net operating Income which is under the variable costing technique & Absorption costing method is due to treatment of Fixed manufacturing overhead.

Difference can be reconcile using following below:

Criteria Operating Income higher in

Ending Inventory is higher than beginning Inventory Absorption costing

Ending Inventory is lesser than beginning Inventory Variable costing

So,

The inventory reduced by 2,300 units; implies that Ending inventory is lesser than Beginning Inventory, the Net operating income higher in Variable costing.