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 absorptioncosting basis):

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 income figures.LO1

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Sales (38,200 units @ $20) Less: Cost of goods sold Gross margin Less: Selling and administrative expenses (all fixed) Operating income $764,000 546,260 $217,740 184,500 $ 33,240