Craft Company produces a single product. Last year, the company had a net operating income of $80,000 using absorption costing and $74500 using variable costing. The fixed manufacturing overhead cost was $5 per unit. There were no beginning inventories. If 21,500 units were produced last year, then sales last year were ?

A. 22600 units

B. 27000 units

C. 20400 units

D. 16000 units

Answer: Option C

Solution(By Examveda Team)

In given question net operating income was greater than its variable costing net by $5,500 ($80000 - $74500), it must have deferred $5,500 of fixed manufacturing overhead costs in inventory under absorption costing.
Closing inventory unit = $5,500/$5 per unit = 1,100 units
Sale last year = Opening inventory + produced unit - closing Inventory
= 0 + 21,500 - 1,100 = 20,400