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For the month ended October 31st, there are no finished goods or work in process inventories at the beginning of the month for the Fleetfoot Company. Net sales $8,400 Product costs: Variable 3,780 Fixed 1,890 Selling and Administrative costs: Variable 588 Fixed 840 Units manufactured 210 Units sold 180 Under absorption costing, Fleetfoot's operating income for the year is: A. $1,014 B. $2,002 C. $2,112 D. $1,842

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Answer:

C. $2,112

Explanation:

Under absorption costing, cost of a finished product will include the costs of direct materials , direct labor , variable and fixed manufacturing overhead.

Solution:

Determine first the cost of sales:

Variable product cost $3,780  + Fixed product cost $1,890  = $5,670

Total product cost $5,670 ÷ 210 units manufactured = $27/unit

$27 per unit cost × 180 units sold = $4,860 cost of sales

Then,

Net Sales $8,400 - Cost of Sales $4,860 = $3,540 Profit

Profit $3,540 - Selling/Admin variable & fixed costs $1,428 = $2,112 Net operating income

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