Q3: Variable-Costing and Absorption-Costing Income

Borques Company produces and sells wooden pallets that are used for moving and stacking materials. The operating costs for the past year were as follows:

Variable costs per unit:
Direct materials	$ 2.85
Direct labor	$ 1.92
Variable overhead	$ 1.60
Variable selling	$ 0.90
Fixed costs per year:
Fixed overhead	$180,000
Selling and administrative	$ 96,000

During the year, Borques produced 200,000 wooden pallets and sold 204,300 at $9 each. Borques had 8,200 pallets in beginning finished goods inventory; costs have not changed from last year to this year. An actual costing system is used for product costing.

Required:

1. What is the per-unit inventory cost that is acceptable for reporting on Borquess balance sheet at the end of the year?

$ 7.27 =2.85+1.92+1.6+0.9

How many units are in ending inventory?

3900 units =8200+200000-204300

What is the total cost of ending inventory?

$ 28353 =3900*7.27

2. Calculate absorption-costing operating income.

$?

3. What would the per-unit inventory cost be under variable costing? Round your answer to the nearest cent.

$ 6.37 =2.85+1.92+1.6

Does this differ from the unit cost computed in Requirement 1?

Yes

4. Calculate variable-costing operating income.

$ ?

5. Suppose that Borques Company had sold 196,700 pallets during the year. What would absorption-costing operating income have been?

$?

What would variable-costing operating income?

$?