Question

In: Accounting

Easton Pump Company’s planned production for the year just ended was 18,400 units. This production level...

Easton Pump Company’s planned production for the year just ended was 18,400 units. This production level was achieved, and 20,700 units were sold. Other data follow:

Direct material used $ 570,400
Direct labor incurred 270,480
Fixed manufacturing overhead 388,240
Variable manufacturing overhead 178,480
Fixed selling and administrative expenses 309,120
Variable selling and administrative expenses 107,640
Finished-goods inventory, January 1 3,200 units


The cost per unit remained the same in the current year as in the previous year. There were no work-in-process inventories at the beginning or end of the year.

Required:

  1. 1. What would be Easton Pump Company’s finished-goods inventory cost on December 31 under the variable-costing method? (Do not round intermediate calculations.)

  2. 2-a. Which costing method, absorption or variable costing, would show a higher operating income for the year?

  3. 2-b. By what amount? (Do not round intermediate calculations.)

Solutions

Expert Solution

Answer
1
Direct material used $            570,400
Direct labor incurred $            270,480
Variable manufacturing overhead $            178,480
Total product cost under variable-costing $         1,019,360
Unit product cost under variable-costing 55.4 1019360/18400
X Ending inventory units 900 18400+3200-20700
Finished-goods inventory cost $              49,860
2a
Higher operating income method Variable costing
2b
Fixed manufacturing overhead per unit 21.1 388240 /18400
Decrease in inventory 2300 3200-900
Difference in reported
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