Problem 1

Easton Pump Company's planned production for the year just ended was 18,700 units. This production level was achieved, and 21,000 units were sold. Other data follow:

Direct material used$557,260

Direct labor incurred269,280

Fixed manufacturing overhead407,660

Variable manufacturing overhead188,870

Fixed selling and administrative expenses316,030

Variable selling and administrative expenses100,045

Finished-goods inventory, January 12, 900 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 finished-goods inventory cost on December 31 under the variable-costing 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.)

Problem 2

Bianca Bicycle Company manufactures mountain bikes with a variable cost of $2,700. The bicycles sell for $3,450 each. Budgeted fixed manufacturing overhead for the most recent year was $12,700,000. Planned and actual production for the year were the same.

Required:

State whether income is higher under variable or absorption costing and the amount of the difference in reported opearting income under the two methods. Treat each condition as an independent case.(Round intermediate calculations to 2 decimal places.)

1. Production 23,700 units; Sales 28,400 units
2. Production 14,000 units;Sales 14,000 units
3. Production 13,550 units;Sales 10,650 units

Problem 3

Outback Corporation manufactures tactical LED flashlights in Brisbane, Australia. The firm uses an absorption costing system for internal reporting purposes; however, the company is considering using variable costing. Data regarding Outback's planned and actual operations for 20x1 follow:

Budgeted Costs

Per Unit Total Actual

CostsDirect material $12.00 $1,680,000 $1,560,000

Direct labor 9.00 1,260,000 1,170,000

Variable manufacturing overhead 4.00 560,000 520,000

Fixed manufacturing overhead 5.00 700,000 715,000

Variable selling expenses 8.00 1,120,000 1,000,000

Fixed selling expenses 7.00 980,000 980,000

Variable administrative expenses 2.00 280,000 250,000

Fixed administrative expenses 3.00 420,000 425,000

Total $50.00 $7,000,000 $6,620,000

Planned Activity Actual Activity

Beginning finished-goods inventory in units 35,000 35,000

Sales in units 140,000 125,000

Production in units 140,000 130,000

The budgeted per-unit cost figures were based on Outback producing and selling 140,000 units in 20x1. Outback uses a predetermined overhead rate for applying manufacturing overhead to its product. A total manufacturing overhead rate of $9.00 per unit was employed for absorption costing purposes in 20x1. Any overapplied or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the end of the year. The 20x1 beginning finished-goods inventory for absorption costing purposes was valued at the 20x0 budgeted unit manufacturing cost, which was the same as the 20x1 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 20x1 was $70 per unit.

Required:

Was Outback's 20x1 operating income higher under absorption costing or variable costing?

Also, compute the following:

1. The value of Outback Corporation's 20x1 ending finished-goods inventory under absorption costing.
2. The value of Outback Corporation's 20x1 ending finished-goods inventory under variable costing.
3. The difference between Outback Corporation's 20x1 reported operating income calculated under absorption costing and calculated under variable costing.