At 500 yards, it calculates a bullet drop of 32.4 inches…

…Set 2 targets at 200 yards. The top one was exactly 32.4 inches above it.

That's your math error. You are thinking that if the bullet drops 32.4 inches at 500 yards, it will be 32.4 inches high at 200 yards. It won't. Doom has it right. Trajectories diverge as a matter of their angles, and not by fixed widths, with the origin (vertex) of the angles being the scope image at the firing point. That is, 32.4 inches at 500 yards is the distance between the sides of an angle from the scope image of 6.188 minutes. At 200 yards, the sides of that 6.188-minute angle will be just 12.96 inches apart, not 32.4 inches apart as they are at 500 yards. So your bullet will impact 12.96 inches high at 200 yards, where it is probably going through an old hole in the target backer between your two targets.

The reason this happens is that your scope is dumb and doesn't know what range your brain is concerning itself with. Its adjustments just move the point of impact (POI) a certain distance across the image in the scope. Well, the image of a 32.4 inch span is smaller from 500 yards than it is from 200 yards, where it is the same size as a 12.96 inch span, so that is how much the same 6.188 minutes adjustment will move the POI at those two ranges, respectively.

To solve the problem without invoking angles directly, just use the ratio of the ranges:

32.4 inches × 200 yards / 500 yards = 12.96 inches (the yards cancel out)

You can confirm your custom turret calibration by dividing 6.188 moa by the number of moa in each click of your sight changes the point of aim and checking that they match.

Example: suppose you have the most common 1/4 moa clicks:

6.188 moa / 0.25 moa/click = 24.75 clicks (the moa cancel out)

That rounds to 25 clicks, so you then expect your 500-yard setting to be 25 clicks above your 200-yard setting if it is correctly scaled for your bullet and muzzle velocity. With half moa clicks, it will round to 12 clicks. With 1/8 moa clicks, it will round to 50 clicks. With 1/10 moa clicks, it will round to 62 clicks.

If you need to solve this for other ranges, the exact moa are:

Inches of Span / (π × Range in Yards / 300) = moa