Question

Keyser Corporation, which has only one product, has provided the following data concerning its most recent month of operations Selling price $ 157 Units in beginning inventory Units produced Units sold Units in ending inventory 1,250 9,150 9,250 1,150 Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative expense Fixed costs: Fixed manufacturing overhead Fixed selling and administrative expense $ 73,200 $166,000 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month What is the net operating income for the month under absorption costing? Multiple Choice $19.000 0 0 $19,800 0

Answer 1

1. Answer is "A" : 19,000.

Reason :

Caclulation of Net Operating Income
Particulars	Amount ($)
Sales	14,52,250
Less : Cost of goods sold	-10,26,750
Gross Profit	4,25,500
Less : Selling and administrative expenses
Variable	-2,40,500
Fixed	-1,66,000
Net Operating Income	19,000
Calculation of Cost of goods sold :
Opening Inventory	1,38,750	(1250 units*111$)
Production cost	10,15,650	(9150 units*111$)
Less : Closing Inventory	1,27,650	(1150 units*111$)
Cost of Goods sold	10,26,750
Calculation of Unit cost
Direct Materials	35
Direct Labour	52
Variable manufacturing overheads	16
Fixed manufacturing overheads	8
Total Unit Cost	111

2. Correct answer is "D" : 98,200 $.

Reason :

Particulars	Division A	Division B	Total - J Corporation
Contributed Margin	79,300	1,26,200	2,05,500
Less : Fixed Cost :
Traceable Fixed Costs			72,400
Common Fixed Costs			34,900
Net Operating Income			98,200
Note : Since we are calculating the operating income of J Corporation as a whole, common fixed costs are also deducted

3. Correct answer is "C" : 3.00.

Reason :

Operating Leverage = Contribution Margin/Net Operating Income = 150000/50000 = 3 times
Calculation of Contribution Margin & Net Operating Income
Particulars	Amount ($)
Sales	6,50,000
Less : Variable Costs	-5,00,000
Contribution Margin	1,50,000
Less : Fixed Costs	-1,00,000
Net Operating Income	50,000

4. Change in net operating income = -8,200$

Particulars	Existing conditions	With new component	Change
Sales	5,10,000	6,60,000	1,50,000
Less : VC	81,600	2,39,800	1,58,200
Contribution Margin	4,28,400	4,20,200	-8,200
Less : FC	2,20,000	2,20,000	-
Net Operating Income	2,08,400	2,00,200	-8,200