FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Pandora Pillow Company’s planned production for the year just ended was 10,000 units. This production level was achieved, but only 9,000 units were sold. Other data follow:
Direct material used ................................................................................... $40,000
Direct labor incurred .................................................................................... 20,000
Fixed manufacturing
Variable manufacturing overhead ......................................................... 12,000
Fixed selling and administrative expenses ......................................... 30,000
Variable selling and administrative expenses .................................... 4,500
Finished-goods inventory, January 1 .................................................... None
The cost per unit remained the same in the current year as in the previous year. There were no work-inprocess inventories at the beginning or end of the year.
Required:
1. What would be Pandora Pillow Company’s finished-goods inventory cost on December 31 under the variable-costing method?
2. Which costing method, absorption or variable costing, would show a higher operating income for the year? By what amount?
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