Problem - Variable-Costing and Absorption-Costing Income
Borques Company produces and sells wooden pallets that are used for moving and stacking materials. The operating costs for the past year were as follows:
Variable costs per unit:
Direct materials $2.85
Direct labor $1.92
Variable overhead $1.60
Variable selling $0.90
Fixed costs per year:
Fixed overhead $180,000
Selling and administrative $ 96,000
During the year, Borques produced 200,000 wooden pallets and sold 204,300 at $9 each. Borques had 8,200 pallets in beginning finished goods inventory; costs have not changed from last year to this year. An actual costing system is used for product costing.
Required:
1. What is the per-unit inventory cost that is acceptable for reporting on Borques's balance sheet at the end of the year? How many units are in ending inventory? What is the total cost of ending inventory? Round the per unit amount to the nearest cent.
2. Calculate absorption-costing operating income.
3. Conceptual Connection: What would the per-unit inventory cost be under variable costing? Round to the nearest cent.
Does this differ from the unit cost computed in Requirement 1? Why?
4. Calculate variable-costing operating income.
5. Suppose that Borques Company had sold 196,700 pallets during the year. What would absorption-costing operating income have been? Variable-costing operating income?