Question

Selected information concerning the operation of Kern Company for the year ended December 31, 2014, is available as follows:
Units produced .............. 10,000
Units sold ............... 9,000
Direct materials used .......... $40,000
Direct labor incurred ............ 20,000
Fixed factory overhead ........... 25,000
Variable factory overhead ......... 12,000
Fixed selling and administrative expenses ... 30,000
Variable selling and administrative expenses ... 4,500
Finished goods inventory, January 1, 2014 ... None

No work-in-process inventories existed at the beginning or end of 2014.
Required:
1. What would be Kern’s finished goods inventory cost under the variable (direct) costing method at December 31, 2014?
2. Which costing method—absorption or variable costing—would show a higher operating income for 2014, and by what amount?



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  • CreatedSeptember 10, 2014
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