Borques Company produces and sells wooden pallets that are used for moving and stacking

materials. The operating costs for the past year were as follows:

Variable cost per unit

Direct materials

P142.50

Direct labor

96.00

Variable overhead

80.00

Fixed cost per unit

Fixed overhead

P180,000

Selling and administrative

96,000

During the year, Borques produced 200,000 wooden pallets and sold 204,300 at P450.00 each.

Borques had 8,200 pallets in beginning finished goods inventory; costs have not changed from

last year to this year. An actual costing system is used for product costing.

Required:

1. What is the per unit inventory cost that is acceptable for reporting to Borques balance

sheet at the end of the year? How many units are in ending inventory? What is the total

cost of ending inventory?

2. Compute for the absorption-costing income.

3. What would the per unit inventory cost be under the variable-costing method? Does this

differ from the unit cost computed in Requirement 1? Why?

4. Compute for the variable-costing income.

5. Suppose that Borques Company had sold 196,700 pallets during the year. What would

absorption costing operating income have been? Variable-costing operating income?