The company's net operating income for the year under variable costing would be:

A) $255,000
B) $270,000
C) $200,000
D) $280,000

Question

The company's net operating income for the year under variable costing would be:A) $255,000B) $270,000C) $200,000D) $280,000

Namita Tuteja · Accepted Answer

Final Answer : A, Explanation :  Under variable costing, only variable manufacturing costs are included in the cost of goods sold. Fixed manufacturing costs are treated as period costs and expensed in full in the period they are incurred.Using the given information, we can calculate the variable cost per unit:$27,000 ÷ 9,000 = $3.00 per unitTherefore, the cost of goods sold for the year is:$3.00 x 6,000 units = $18,000$3.00 x 9,000 units = $27,000$3.00 x 11,000 units = $33,000$3.00 x 14,000 units = $42,000Total cost of goods sold = $120,000The company's variable selling and administrative expenses are given as $135,000.Therefore, the company's net operating income for the year under variable costing is:Sales revenue - cost of goods sold - variable selling and administrative expenses$400,000 - $120,000 - $135,000 = $145,000However, the question asks for the net operating income for the year, not the net income. The fixed manufacturing overhead costs ($135,000) are not expensed in full under variable costing and are instead carried forward as a deferred expense.Therefore, the net operating income for the year under variable costing is:Net income + fixed manufacturing overhead cost deferred in inventory$145,000 + $110,000 = $255,000   Reference: CHO7-Ref14Elison Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

The company's net operating income for the year under variable costing would be:

A) $255,000
B) $270,000
C) $200,000
D) $280,000

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