During its first year of operations, Snobegon, Inc. (located in Lake Snobegon, Minnesota), produced 40,000 plastic snow scoops. Snow scoops are oversized shovel-type scoops that are used to push snow away. Unit sales were 38,200 scoops. Fixed overhead was applied at $0.75 per unit produced. Fixed overhead was underapplied by $2,900. This fixed overhead variance was closed to Cost of Goods Sold. There was no variable overhead variance. The results of the year’s operations are as follows (on an absorption-costing basis):
Sales (38,200 units @ $20) .............$764,000
Less: Cost of goods sold ............. 546,260
Gross margin ...................$217,740
Less: Selling and administrative expenses (all fixed) .... 184,500
Operating income .................. $ 33,240
Required:
1. Calculate the cost of the firm’s ending inventory under absorption costing. What is the cost of the ending inventory under variable costing?
2. Prepare a variable-costing income statement. Reconcile the difference between the two