$358$

Chapter $8$ Variable Costing and the Measurement of ESG and Quality Costs

Exercise $8-22$

Absorption and Variable Costing $($LO $8-1,8-4)$

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

Fixed manufacturing overhead

$300,000$

$420,000$

Variable manufacturing overhead

$200,000$

Fixed selling and administrative expenses.

$350,000$

Variable selling and administrative expenses

$105,000$

Finlshed$-$goods inventory, January $1$

$2,000$ units

The cost per unit remained the same in the current year as in the previous year. There were no work$-$inprocess inventories at the beginning or end of the year.

Required:

What would be Easton Pump Company's finished$-$goods inventory cost on December $31$ under the variable$-$costing method?

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

$($CMA$,$ adapted$)$