Question

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.)

Answer 1

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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