Question: Pinellas Pillow Company s planned production for the year just ended

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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  • CreatedApril 22, 2014
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