Sales revenue$ 4,000Purchases of direct materials$ 400Direct labor$ 450Manufacturing overhead$ 620Operating expenses$ 650Beginning raw materials inventory$ 200Ending raw materials inventory$ 180Beginning work in process inventory$ 320Ending work in process inventory$ 410Beginning finished goods inventory$ 250Ending finished goods inventory$ 200What was operating income? A) $2,530B) $4,000C) $3,350D) $1,900

The correct answer is D: $1900

Explanation:

Giving the following information:

Sales revenue$ 4,000

Purchases of direct materials$ 400

Direct labor$ 450

Manufacturing overhead $ 620

Operating expenses$ 650

Beginning raw materials inventory$ 200

Ending raw materials inventory$ 180

Beginning work in process inventory$ 320

Ending work in process inventory$ 410

Beginning finished goods inventory$ 250

Ending finished goods inventory$ 200

First, we need to calculate the cost of goods manufactured:

cost of goods manufactured = beginning work in process + direct materials + direct labor + manufacturing overhead - ending work in process

Direct materials = beginning inventory + purchase - ending inventory = 200 + 400 - 180 = 420

cost of goods manufactured = 320 + 420 + 450 + 620 - 410 = $1400

Now, we can calculate the cost of goods sold:

COGS = beginning finished inventory + cost of goods manufactured - ending finished goods

COGS = 250 + 1400 - 200 = 1450

Operating income = sales - COGS - operating expenses

Operating income = 4000 - 1450 - 650 = $1900