Clouse Company produced 10,000 units during the past year, but only 8,500 of the units were sold. The following additional information is also available: direct materials used $85,000 direct labor incurred $30,000 variable manufacturing overhead $25,000 fixed manufacturing overhead $40,000 did not fix selling and administrative expenses $70,000 variable selling and administrative expenses $10,000 there was no work-in-process inventory at the beginning of the year, nor did Clouse have any beginning finished goods inventory.

Instructions

a) What would be Clouse company’s finished goods inventory cost on December 31 under variable costing?

b) What would be Clouse company’s finished goods inventory cost on December 31 under absorption costing?

c) Which costing method, absorption or variable costing, would show a higher net income for the year? By what amount?