Pinellas Pillow Companys planned production for the year just ended was 10,000 units. This production level was

Question:

Pinellas Pillow Company’s planned production for the year just ended was 10,000 units. This production level was achieved, but only 9,000 units were sold. Other data follows:

Direct material used................................................................. $80,000

Direct labor incurred................................................................40,000

Fixed manufacturing overhead................................................50,000

Variable manufacturing overhead...........................................24,000

Fixed selling and administrative expenses..............................60,000

Variable selling and administrative expenses......................... 9,000

Finished-goods inventory, January 1...................................... None

There were no work-in-process inventories at the beginning or end of the year.


Required:

1. What would be Pinellas Pillow 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?

(CPA, adapted)


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