Easton Pump Company’s planned production for the year just ended was 18,100 units. This production level was achieved, and 20,700 units were sold. Other data follow: Direct material used $ 526,710 Direct labor incurred 257,020 Fixed manufacturing overhead 367,430 Variable manufacturing overhead 195,480 Fixed selling and administrative expenses 304,080 Variable selling and administrative expenses 82,355 Finished-goods inventory, January 1 3,500 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. 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-a. Which costing method, absorption or variable costing, would show a higher operating income for the year? 2-b. By what amount? (Do not round intermediate calculations.)
Easton Pump Company’s planned production for the year just ended was 18,100 units. This production level was achieved, and 20,700 units were sold. Other data follow:
| Direct material used | $ | 526,710 | |
| Direct labor incurred | 257,020 | ||
| Fixed manufacturing |
367,430 | ||
| Variable manufacturing overhead | 195,480 | ||
| Fixed selling and administrative expenses | 304,080 | ||
| Variable selling and administrative expenses | 82,355 | ||
| Finished-goods inventory, January 1 | 3,500 | 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. 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-a. Which costing method, absorption or variable costing, would show a higher operating income for the year?
2-b. By what amount? (Do not round intermediate calculations.)
| Finished Goods Inventory Cost | |||
| Higher Operating Income Method | Variable Costing | ||
| Difference in Reported Income |
The income statement is prepared to find the profitability of the organization.
The income statement can be prepared using various methods as variable costing and absorption costing.
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