Croft Corporation produces a single product. Last year, the company had a net operating income of $104,960 using absorption costing and $83,000 using variable costing. The fixed manufacturing overhead cost was $12 per unit. There were no beginning inventories. If 29,600 units were produced last year, then sales last year were:

Croft Corporation produces a single product. Last year, the company had a net operating income of $104,960 using absorption costing and $83,000 using variable costing. The fixed manufacturing overhead cost was $12 per unit. There were no beginning inventories. If 29,600 units were produced last year, then sales last year were:

Multiple Choice

• 27,770 units

  Correct
• 51,560 units
• 7,640 units
• 31,430 units

Explanation

Variable costing net operating income	$	83,000
Add fixed manufacturing overhead costs deferred in inventory under absorption costing		X
Deduct fixed manufacturing overhead costs released from inventory under absorption  costing
Absorption costing net operating income	$	104,960

Since absorption costing net operating income was greater than its variable costing net operating income by $21,960, it must have deferred $21,960 of fixed manufacturing overhead costs in inventory under absorption costing.

Manufacturing overhead deferred in (released from) inventory = Fixed manufacturing overhead in ending inventory – Fixed manufacturing overhead in beginning inventory

$21,960 = (Fixed manufacturing overhead per unit × Units in ending inventory) – $0

$21,960 = ($12 per unit × Units in ending inventory) – $0

$21,960 = $12 per unit × Units in ending inventory

Units in ending inventory = $21,960 ÷ $12 per unit = 1,830 units

Units in beginning inventory + Units produced = Units in ending inventory + Units sold

0 units + 29,600 units = 1,830 units + Units sold

Units sold = 0 units + 29,600 units – 1,830 units = 27,770 units

Thanks