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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  • CreatedApril 22, 2014
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