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Krepps Corporation produces a single product. Last year, Krepps manufactured 31,770 units and sold 26,400 units. Production costs for the year were as follows: Direct

Krepps Corporation produces a single product. Last year, Krepps manufactured 31,770 units and sold 26,400 units. Production costs for the year were as follows:

Direct materials $228,744
Direct labor $142,965
Variable manufacturing overhead $247,806
Fixed manufacturing overhead $508,320

Sales totaled $1,161,600 for the year, variable selling and administrative expenses totaled $139,920, and fixed selling and administrative expenses totaled $225,567. There was no beginning inventory. Assume that direct labor is a variable cost.

Under variable costing, the company's net operating income for the year would be:

  • $31,683 lower than under absorption costing.

  • $31,683 higher than under absorption costing.

  • $85,920 lower than under absorption costing.

  • $85,920 higher than under absorption costing.

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