Clay Co. produces ceramic coffee mugs and pencil holders. Manufacturing overhead is assigned to production using an application rate based on direct labor hours.

1. A production run of 200 coffee mugs used raw materials that cost $490 and used 40 direct labor hours at a cost of $10.70 per hour. Calculate the cost of each coffee mug produced.

2. At the end of October 2019, 150 coffee mugs made in the production run in part b had been sold and the rest were in ending inventory. Calculate (1) the cost of the coffee mugs sold that would have been reported in the income statement and (2) the cost included in the October 31, 2019, finished goods inventory.