Outback, Ltd., manufactures tactical LED flashlights in Melbourne, Australia. The firm uses an absorption-costing system for internal reporting purposes; however, the company is considering using variable costing. Data regarding planned and actual operations for 20x4 follow:

	Budgeted Costs
	Per Unit			Total			Actual Costs
Direct material	$	12.50		$	1,637,500		$	1,512,500
Direct labor		9.40			1,231,400			1,137,400
Variable manufacturing overhead		4.40			576,400			532,400
Fixed manufacturing overhead		4.80			628,800			638,800
Variable selling expenses		7.70			1,008,700			862,400
Fixed selling expenses		7.30			956,300			956,300
Variable administrative expenses		2.90			379,900			324,800
Fixed administrative expenses		2.50			327,500			335,500
Total	$	51.50		$	6,746,500		$	6,300,100

	Planned Activity		Actual Activity
Sales in units	131,000		112,000
Production in units	131,000		121,000
Beginning finished-goods inventory in units	38,000		38,000

The budgeted per-unit cost figures were based on the company producing and selling 131,000 units in 20x4. Outback uses a predetermined overhead rate for applying manufacturing overhead to its product. A total manufacturing overhead rate of $9.20 per unit was employed for absorption costing purposes in 20x4. Any overapplied or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the end of the year. The 20x4 beginning finished-goods inventory for absorption costing purposes was valued at the 20x3 budgeted unit manufacturing cost, which was the same as the 20x4 budgeted unit manufacturing cost. There are no work-in-process inventories at either the beginning or the end of the year. The planned and actual unit selling price for 20x4 was $72.00 per unit.

Required:

Was Outbacks 20x4 operating income higher under absorption costing or variable costing?

It was higher under variable costing.It was higher under absorption costing.

1.

Compute the value of Outbacks 20x4 ending finished-goods inventory under absorption costing. (Do not round intermediate calculations.)

2.

Compute the value of Outbacks 20x4 ending finished-goods inventory under variable costing. (Do not round intermediate calculations.)

3.

Compute the difference between Outbacks 20x4 reported operating income calculated under absorption costing and calculated under variable costing. (Do not round intermediate calculations.)

4.	Suppose Outback had introduced a JIT production and inventory management system at the beginning of 20x4.

a.

What would likely be different about the scenario as described in the problem?(Select all that apply.)

b.	Would reported operating income under variable and absorption costing differ by the magnitude you found in part (3)? (Select all that apply.)