Question

Altoona Valve 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..................................................... $ 300,000
Direct labor incurred....................................................... 150,000
Fixed manufacturing overhead....................................... 210,000
Variable manufacturing overhead................................... 100,000
Fixed selling and administrative expenses...................... 175,000
Variable selling and administrative expenses................. 52,500
Finished- goods inventory, January 1............................. 2,000 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 Altoona Valve 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?
(CMA, adapted)



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  • CreatedApril 22, 2014
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