Question

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

Selling price per unit	$	84
Manufacturing costs:
Variable manufacturing cost per unit produced:
Direct materials	$	12
Direct labor	$	5
Variable manufacturing overhead	$	4
Fixed manufacturing overhead per year	$	432,000
Selling and administrative expenses:
Variable selling and administrative expense per unit sold	$	5
Fixed selling and administrative expense per year	$	61,000

	Year 1		Year 2
Units in beginning inventory	0		3,000
Units produced during the year	12,000		9,000
Units sold during the year	9,000		10,000
Units in ending inventory	3,000		2,000

The net operating income (loss) under absorption costing in Year 1 is closest to:

Answer 1

Net operating income for year 1= $137,000

Working

Traditional income statement
Sales		$      7,56,000.00
Cost of goods sold (12+5+4+36) x 9000		$      5,13,000.00
Gross profit		$      2,43,000.00
Selling and administrative expenses
Variable selling cost	$     45,000.00
Fixed selling and administrative expense	$     61,000.00
		$      1,06,000.00
Net operating income		$      1,37,000.00

Fixed manufacturing overheads	$ 4,32,000.00
Units produced	12,000
Fixed manufacturing overheads per unit (69000/300)	$ 36.00