Witherspoon Company produced 20,000 units during its first year of operations and sold 19,350 units. The company chose practical activity-at 20,000 units-to compute its predetermined overhead rate. Manufacturing costs are as follows:
Direct materials $120,600
Direct labor 90,000
Expected and actual variable overhead 26,400 Expected and actual fixed overhead 68,000
Required
1. Calculate the unit cost and the cost of finished goods inventory under absorption costing.
2. Calculate the unit cost and the cost of finished goods inventory under variable costing.
3. What is the dollar amount that would be used to report the cost of finished goods inventory to external parties. Why?