Exercise 8-21 Absorption and Variable Costing (L0 8-1) Information taken from Tuscarora Paper Company's records for the most recent year is as follows: Direct material used $282,666 Direct labor 136,666 Variable manufacturing overhead 76,666 Fixed manufacturing overhead 116,666 Variable selling and administrative costs 64,666 Fixed selling and administrative costs 34,666 Required: 1. Assuming Tuscarora Paper Company uses variable costing, compute the inventoriable costs for the year. 2. Compute the year's inventoriable costs using absorption costing. Exercise 8-22 Absorption and Variable Costing (LO 8-1, 8-4) Easton Pump Company's planned production for the yearjust ended was 18,500 units. This production level was achieved, and 20,700 units were sold. Other data follow: Direct material used $542,050 Direct labor incurred 260,850 Fixed manufacturing overhead 397,750 Variable manufacturing overhead 192,400 Fixed selling and administrative expenses 336,700 Variable selling and administrative expenses 84,175 Finishedgoods inventory, January 1 2,800 units The cost per unit remained the same in the current year as in the previous year. There were no work-in-process inventories at the beginning or end of the year. Required: 1. What would be Easton Pump Company's finishedgoods inventory cost on December 31 under the variablecosting method? (Do not round intermediate calculations.) 2-a. Which costing method, absorption or variable costing, would show a higher operating income for the year? 2-b. By what amount? (Do not round intermediate calculations.) Finished-goods inventory cost 2a. Higher operating income method 2b. Difference in reported income Easton Pump Company Per unit manufacturing cost under variable costing :- Particulars Amount $ Direct materials (542050/18500) 29.30 Direct labor (260850/18500) 14.10 Variable manufacturing overhead (192400/18500) 10.40 Per unit manufacturing cost 53.80 1 Finished goods inventory at end is = Beginning inventory + Produced goods - Sold units Finished goods inventory at end is = (2800+18500-20700) Finished goods inventory at end is = 600 units Cost of finished goods inventory is = Ending inventory * Variable manufacturing cost per unit Cost of finished goods inventory is = (600*53.80) Cost of finished goods inventory is = $ 32,280/. Cost of beginning finished goods inventory is = (2800*53.80) Cost of beginning finished goods inventory is = $ 150,640/. Net operating income impact = 150640-32280 = $ 118,360/. 2 We need to determine ending inventory under absorbtion costing system as well. Per unit manufacturing cost under absorbtion costing : Particulars Amount $ Direct materials 29.30 Direct labor 14.10 Variable manufacturing overhead 10.40 Fixed manufacturing overhead (397750/18500) 21.50 Per unit manufacturing cost 75.30 Cost of finished goods inventory is = (600*75.30) Cost of finished goods inventory is = $ 45,180/. Cost of beginning finished goods inventory is = (2800*75.30) Cost of beginning finished goods inventory is = $ 210,840/. Net operating income impact = 210840-45180 = $ 165,660/. Since net impact of operating income is higher in abosrtion costing, Net operating income under absorbtion costing income will be lower than variable costing income. 3 Difference in reported net income is = (165660-118360) Difference in reported net income is = $ 47,300/. Net Operating Income is higher under variable costing by $ 47,300/