Question

Sarah Stoner sells handmade jewelry that she designs herself. The items aren’t expensive, and she has a loyal following in her town and the surrounding area. Sarah incurred the following unit costs to produce 60,000 items.
Direct materials........... $3.00
Direct labor ........... $1.75
Variable overhead........... $0.75
Fixed overhead........... $4.25

Sarah began the year with no inventory. During the year she sold 45,000 items for $15 each, incurring $0.50 in selling costs per item plus $5,000 in advertising and other selling expenses.

Required
a. Under variable costing, what is Sarah’s operating income?
b. Under absorption costing, what is Sarah’s ending Finished Goods Inventory balance?



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  • CreatedFebruary 21, 2014
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