Direct materials $4.00 per unit Direct labor $3.00 per unit Variable manufacturing overhead $2.00 per unit Variable selling and administrative costs $1.00 per unit Fixed manufacturing overhead $25,000 Fixed selling and administrative costs $10,000 During 2012, Preferred produced 5,000 units out of which 4,600 units were sold for $30 each. Calculate Preferred's net operating income assuming the company uses absorption costing.

The difference between variable costing and absorption costing is that the fixed manufacturing overhead is included as a product cost under absorption costing.
So, in order to employ absorption costing, we have to compute a per unit production cost, including the fixed manufacturing cost.
The expenses here are:
direct materials: $4/unit
direct labor: $3/unit
variable manufacturing overhead: $2/unit
variable selling and administrative costs: $ 1/unit
fixed manufacturing overhead: $25,000
So, because absorption costing includes this $25,00 cost in the calculation of the per unit cost, and because 5,000 units were sold, the per unit cost using absorption costing is
$10+$5 = $15
fixed selling and administrative costs: $10,000
The equation for net operating income under absorption costing is:
net sales revenue - costs of good sold - selling and administrative costs = operating income.
So, we have:
(4,600 units * $30/unit) - (4,600 units * $15/unit) - ($10,000 fixed selling and administrative costs) = $59,000 operating income.