Consider the following information pertaining to a year’s operation of Blair Company:

Units produced ………………………………… 2,500

Units sold ………………………………………. 2,100

Direct labor ……………………………………. $4,000

Direct materials used ………………………….. $3,000

Selling and administrative expenses (all fixed) … $  900

Fixed manufacturing overhead …………………. $5,000

Variable manufacturing overhead ……………… $2,500

All beginning inventories ………………………. $ 0

Gross margin (gross profit) …………………….. $2,200

Direct-materials inventory, end ………………. $ 400

Work-in-process inventory, end ……………… $  0

1. What is the ending finished-goods inventory cost under variable costing?

2. What is the ending finished-goods inventory cost under absorption costing?

3. Would operating income be higher or lower under variable costing? By how much? Why?