Smith Company produces and sells one product for $40 per unit. The company has no beginning inventories. Its variable manufacturing cost per unit is $18 and the variable selling and administrative expense per unit is $4. The fixed manufacturing overhead and fixed selling and administrative expense total $80,000 and

$20,000, respectively. If Smith Company produces 8,000 units and sells 7,500 units during the year, then its net operating income under absorption costing would be.

a. $65,000

b. $41,250

c. $40,000

b. $35,000 In its first year of operations, Kelley Company produced 10,000 units and sold 7,000 units.
Its direct materials, direct labor, variable manufacturing overhead, and variable selling and administrative unit costs were $12, $8, $2, and $1, respectively. Its total fixed manufacturing overhead for the year was $50,000.