Borques Company produces and sells wooden pallets used for moving and stacking materials. The operating costs for the past year were as follows:

Variable overhead costs per unit: $2.85

Direct materials $1.92

Direct labor $1.60

Variable selling $.90

Fixed costs per year: $180,000

Fixed overhead Selling and administrative $ 96,000

During the year, Barques produced 200,000 wooden pallets and sold 204,300 at $9 each. Borques had 8,200 pallets in the beginning, finished goods inventory; costs have stayed the same from last year to this year. An actual costing system is used for product costing.

1. What is the per unit inventory cost under absorption and variable costing?

2. What per unit cost should be used for preparing the GAAP Balance Sheet?

3. If the sales were 196,700 units which method, absorption or variable costing, would result in the largest operating income?

4. What rules would explain the differences in operating income under different production and sales scenarios?