Question

Badoni Corporation has provided the following data for its two most recent years of operation:

Selling price per unit $ 85

Manufacturing costs:

Variable manufacturing cost per unit produced:

Direct materials $ 10

Direct labor $ 6

Variable manufacturing overhead $ 4

Fixed manufacturing overhead per year $ 96,000

Selling and administrative expenses:

Variable selling and administrative expense per unit sold $ 5

Fixed selling and administrative expense per year $ 77,000

	Year 1	Year 2
Units in beginning inventory	0	1,000
Units produced during the year	8000	6000
Units sold during the year	7000	3000
Units in ending inventory	1000	4000

The net operating income (loss) under variable costing in Year 2 is closest to:

a. $180,000

b. $195,000

c. $59,000

d.$7,000

Answer 1

			Year 1	Year 2			Year 1	Year 2
		Opening Units	0	1000		Fixed M OH	96000	96000
		Unit Produced	8000	6000		Unit Produced	8000	6000
		Units Sold	7000	3000		Recovery Rate PU	12.00	16.00
		Closing Units	1000	4000
						Absorption Costing
						Unit Product Cost:	Year 1	Year 2
						Direct Material	10.00	10.00
						Direct Labor	6.00	6.00
						Variable M OH Cost	4.00	4.00
						Fixed M OH	12.00	16.00
						Total Unit Cost	32.00	36.00
					Note:	Selling & Admin Expense are not part of Product Cost
						Absorption Costing
						Badoni Corportion
						Particulars	Year 1	Year 2		Year 1	Year 2
						Sales	595000	255000		7000*85	3000*85
						Less: COGS
						Beginning Inventory	0	32000			Last Year
						Cost of Goods Manufactured	256000	216000		(8000*32)	(6000*36)
						Total Cost Available for Sales	256000	248000
						Closing Inventory	32000	144000		(1000*32)	(4000*36)
						Cost of Goods Sold	224000	104000
						Gross Profit	371000	151000
						Less: S&A Expense
						Variable	35000	15000		7000*5	3000*5
						Fixed	77000	77000
						NOI	259000	59000
						Answer is C $59000/-