Sarah Stoner sells handmade jewelry that she  designs herself. The items aren’t expensive, and she has a loyal following in her town and the surrounding area. Sarah incurred the following unit costs to produce 60,000 items.

Direct materials    . . . . . . . . $4.00

Direct labor            . . . . . . . . $2.25

Variable overhead . . . . . . . . $1.25

Fixed overhead      . . . . . . . . $3.50

Sarah began the year with no inventory. During the year she sold 50,000 items for $15 each, incurring  $1.25 in selling costs per item plus $8,000 in advertising and other selling expenses.

Required

a. Under variable costing, what is Sarah’s operating income?

b. Under absorption costing, what is Sarah’s ending Finished Goods Inventory balance?