Peter Organization produced 10,000 units during the past year, but only 8,500 of the units were sold. The following additional information is also available:

Direct materials used............................................$85,000

Direct labor incurred.............................................$30,000

Variable manufacturing overhead..............................$25,000

Fixed manufacturing overhead.................................$40,000

Fixed selling and administrative expenses....................$70,000

Variable selling and administrative expenses................$10,000

There was no work-in-process inventory at the beginning of the year, nor did Peter have any beginning finished goods inventory.

Instructions

a) What would be Peter Organization's finished goods inventory cost on December 31 under variable costing?

b) What would be Peter Organization's finished goods inventory cost on December 31 under absorption costing?

c) Which costing method, absorption or variable costing, would show a higher net income for the year? By what amount?