Sarah Stoner sells handmade jewelry that she designs herself. The items arent expensive, and she has a loyal following in her town and the surrounding area. Sarah incurred the following unit costs to produce 60,000 items.

Direct materials		$3.00
Direct labor		$1.75
Variable overhead		$0.75
Fixed overhead		$4.25

Sarah began the year with no inventory. During the year she sold 45,000 items for $15.00 each, incurring $0.50 in selling costs per item plus $5,000 in advertising and other selling expenses. (a) Under variable costing, what is Sarahs operating income?

(b) Under absorption costing, what is Sarahs ending Finished Goods Inventory balance?