The ABC Corporation produces wooden pallets that hold virtually any material and are used to moving and storing materials in warehouses. For the past year the following information reflects ABCs operating costs for the past fiscal year:

Variable Costs per unit

• Direct Materials $ 2.85
• Direct Labor 1.92
• Variable Overhead 1.60
• Variable Selling 0.90

Fixed Costs

• Manufacturing Fixed Overhead $ 180,000
• Fixed Selling Expenses 96,000

During the past year, ABC produced a total a total of 200,000 units and sold 204,300 at $9 each. The beginning finished goods inventory consisted of 8,200 units and the costs had not changed from last year to this year. ABC uses the actual (normal) costing method.

Required:

1. What is the unit cost of each pallet that would be reported on ABCs balance sheet as part of external reporting requirements?
2. Given the level of production over the past year what is the number of competed units remaining in finished goods inventory?
3. What is the value of the ending inventory?
4. What is the operating income that would be reported under absorption costing?
5. Determine the variable cost under variable costing. Does this amount differ from what you calculated in requirement #1? If so, why?
6. Calculate ABCs operating income under variable costing. Does it differ from the operating income you determined in requirement 4? Why?