Eauston Pump Company’s planned production for the year just ended was 20,000 units. This production level was achieved, and 21.000 units were sold. Other data follow:
Direct material used | $600,000 |
Direct labor incurred | 300,000 |
Fixed manufacturing overhead | 420,000 |
Variable manufacturing overhead | 200,000 |
Fixed selling and administrative expenses | 350,000 |
Variable selling and administrative expenses | 105,000 |
Finished-goods inventory, January 1 | 2,000 units |
There were no work-in-process inventories at the beginning or end of the year.
Required:
1. What would be Easton Pump 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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