Consider the following information pertaining to a years operation of Blair Company:

Units produced 2,300

Units sold 1,900

Direct labor $3,500

Direct materials used $2,500

Selling and administrative expenses (all fixed) $ 700

Fixed manufacturing overhead $4,900

Variable manufacturing overhead $2,200

All beginning inventories $ 0

Gross margin (gross profit) $2,000

Direct-materials inventory, end $ 250

Work-in-process inventory, end $ 0

1. What is the ending finished-goods inventory cost under variable costing?

2. What is the ending finished-goods inventory cost under absorption costing?

3. Would operating income be higher or lower under variable costing? By how much? Why? (Answer: $833 lower, but explain why.)