Atsuko Ito makes custom skates that sell for $750 a pair. Atsuko began the most recent year with zero inventory. She produced 3,500 pairs of skates during the year and sold 3,300 of them. Atsuko figures that the skates in inventory at year end have materials worth $50,000 and labor of $62,500. Atsuko also informs you that she spent $700,000 on materials, $1,050,000 on labor, $525,000 on manufacturing overhead, and $250,000 on selling and administrative costs during the year.

Required:

a. Using labor dollars to allocate manufacturing overhead costs, determine the value of Atsuko’s ending inventory under GAAP.

b. Using the ending inventory value derived in requirement (a), determine Atsuko’s reported income for the year.

c. Suppose it is near the end of the fiscal year. Because of the lead-time required, Atsuko has received all of the orders relating to the current year. Revenues from any new orders would be booked in the financial statements for the following year. Discuss one way in which Atsuko could temporarily boost her current year’s reported income.