During its first year of operations, Snobegon, Inc. (located in Lake Snobegon, Minnesota), produced 30,000 plastic snow scoops. Snow scoops are oversized shoveltype scoops that are used to push snow away. Unit sales were 29,000 scoops. Fixed overhead was applied at $0.75 per unit produced. Fixed overhead was underapplied by $3,000. This fixed overhead variance was closed to Cost of Goods Sold. There was no variable overhead variance. The results of the year’s operations are as follows (on an absorption-costing basis):
Sales (29,000 units @ $18) ...............$522,000
Less: Cost of goods sold .................304,600
Gross margin ......................$217,400
Less: Selling and administrative expenses (all fixed) ....190,000
Operating income ...................$ 27,400
Required:
1. Give the cost of the firm’s ending inventory under absorption costing. What is the cost of the ending inventory under variable costing?
2. Prepare a variable-costing income statement. Reconcile the difference between the two income figures.