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

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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