During its first year of operations, Snobegon, Inc., (located in Lake Snobegon, Minnesota)

produced 30,000 plastic snow scoops. Snow scoops are oversized shovel-type scoops that are used to push snow away. Unit sales were 29,000 scoops. Fixed overhead was applied at $0.75 per unit produced. Fixed overhead was underapplied by $3,000. 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):

Required:
1. Give 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.

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Sales (29,000 units @ $18) Less: Cost of goods sold Gross margin Less: Selling and administrative expenses (all fixed) Operating income $522,000 304,600 $217,400 190,000 $ 27,400