Easton Pump Company's planned production for the year just ended was 19,100 units. This production level was achieved, and 21,500 units were sold. Other data follow: Direct material used $ 574,910 Direct labor incurred 276,950 Fixed manufacturing overhead 399,190 Variable manufacturing overhead 191,000 Fixed selling and administrative expenses 324,700 Variable selling and administrative expenses 117,465 Finished-goods inventory, January 1 3,300 units The cost per unit remained the same in the current year as in the previous year. 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? (Do not round intermediate calculations.) 2-a. Which costing method, absorption or variable costing, would show a higher operating income for the year? 2-b. By what amount? (Do not round intermediate calculations.)

Instructions are listed below

Explanation:

Giving the following information:

Easton Pump Company's planned production for the year just ended was 19,100 units.

This production level was achieved, and 21,500 units were sold.

Other dа ta:

Direct material used $ 574,910

Direct labor incurred 276,950

Fixed manufacturing overhead 399,190

Variable manufacturing overhead 191,000

Fixed selling and administrative expenses 324,700

Variable selling and administrative expenses 117,465

Finished-goods inventory, January 1 = 3,300 units

Finished goods inventory = beginning inventory + production during period - sales

Finished goods inventory = 3300 + 19100 - 21500 = 900 units

A) variable costing:

Cost per unit = (direct materials + direct labor + variable manufacturing overhead) / units produced

cost per unit = (574910+276950+191000) / 19100

cost per unit = $54.6

B) Absorption costing would have a lower operating income because the fixed manufacturing overhead costs are distributed among the units produced. Therefore some of the fixed costs are taken by the units produced but not sold. They are in inventory.

C) Variable costing:

Variable costs=

Direct material used $ 574,910

Direct labor incurred 276,950

Variable manufacturing overhead 191,000

Variable selling and administrative expenses 117,465

Total variable costs = $1160325

Fixed costs:

Fixed manufacturing overhead 399,190

Fixed selling and administrative expenses 324,700

Total fixed costs = $723890

Total cost of the period = $1,884,215

Absorption method:

Costs of production per unit = (direct material + direct labor + total manufacturing overhead) / units produced

Cost of production per unit = (574,910 + 276,950 + 191,000 + 399,190) / 19100 = $75.5

COGS = (75.5*21500) = 1,623,250

Total administrative and selling costs = (324,700 + 117,465) = 442,165

Total costs = $2,065,415