Variable Costing, Absorption Costing

During its first year of operations, Snobegon, Inc. (located in Lake Snobegon, Minnesota), produced 40,800 plastic snow scoops. Snow scoops are oversized shovel-type scoops that are used to push snow away. Unit sales were 39,000 scoops. Fixed overhead was applied at $0.75 per unit produced. Fixed overhead was underapplied by $2,800. This fixed overhead variance was closed to Cost of Goods Sold. There was no variable overhead variance. The results of the year's operations are as follows (on an absorption-costing basis):

Sales (39,000 units @ $20)	$780,000
Less: Cost of goods sold	549,560
Gross margin	$230,440
Less: Selling and administrative expenses (all fixed)	185,500
Operating income	$ 44,940

Required:

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1. Calculate the cost of the firm's ending inventory under absorption costing. Round unit cost to five decimal places. Round your final answer to the nearest dollar. $fill in the blank 9e95a302805b00e_1

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Determine the number of units in ending inventory first. Calculate unit cost after determining unadjusted COGS (before adjustment for underapplied fixed overhead).

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What is the cost of the ending inventory under variable costing? Round unit cost to five decimal places. Round your final answer to the nearest dollar. $fill in the blank 89377b010fa505c_1

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Take unit cost under absorption less fixed overhead amount per unit to get variable cost per unit for variable costing.

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2. Prepare a variable-costing income statement. Round the unit cost to five decimal places, when required. Round your final answers to the nearest dollar. Use the rounded values in subsequent computations.

Snobegon, Inc. Variable-Costing Income Statement For the First Year of Operations

Fixed overheadFixed selling and administrative expensesSalesVariable cost of goods soldSales	$Sales
Less: Fixed overheadLess: Fixed selling and administrative expensesLess: SalesLess: Variable cost of goods soldLess: Variable cost of goods sold	Less: Variable cost of goods sold
Contribution margin	$fill in the blank 90f82bf6cfc2003_5
Less:
Fixed overheadSalesVariable cost of goods soldFixed overhead	Fixed overhead
Fixed selling and administrative expensesOperating incomeSalesVariable cost of goods soldFixed selling and administrative expenses	Fixed selling and administrative expenses
Operating income	$fill in the blank 90f82bf6cfc2003_10

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Use a contribution margin format income statement that groups costs according to behavior (variable and fixed)

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What is the difference between the two income figures? $fill in the blank cf4cce042fed02e_1