Easton Pump Company's planned production for the year just ended was 20,000 units. This production level was achieved, and 21,000 units were sold. Other data follow:
Direct material used ........................................................................................ $600,000
Direct labor incurred ....................................................................................... 300,000
Fixed manufacturing overhead....................................................................... 420,000
Variable manufacturing overhead ................................................................... 200,000
Fixed selling and administrative expenses ...................................................... 350,000
Variable selling and administrative expenses.................................................. 105,000
Finished-goods inventory, January 1 ............................................................... 2,000 units
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?
2. Which costing method, absorption or variable costing, would show a higher operating income for the year? By what amount?