ExerAde produced 20,000 cases of powdered drink mix and sold 18,000 cases in April. The sales price was $25, variable costs were $8 per case ($6 manufacturing and $2 selling andadministrative), and total fixed costs were $85,000 ($60,000 manufacturing overhead and $25,000 selling andadministrative). The company had no beginning Finished Goods Inventory. ExerAde calculated the cost per unit and the total cost of the 2,000 cases in Finished Goods Inventory as of April 30 using both the absorption and variable costing methods. The calculations are presented below.

Reference

April 30

Absorption Costing: Variable manufacturing cost per case $6, Fixed manufacturing overhead per case 3, Total product cost per case 9, Number of cases in Finished Goods Inventory 2,000, Total cost of Finished Goods Inventory 18,000

Variable Costing: Variable manufacturing cost per case $6, Fixed manufacturing overhead per case 0, Total product cost per case 6, Number of cases in Finished Goods Inventory 2,000, Total cost of Finished Goods Inventory 12,000

Requirements

1. Which costing method produces the highest operatingincome? Explain why.

2. Which costing method produces the highest April 30 balance in Finished GoodsInventory? Explain why.