PROBLEM 1

Eudora Corporation manufactures a propeller. Shown below is Eudora's cost structure:

...................................................Variable cost per propeller.........................Total fixed cost for the year

Manufacturing cost...........................P114....................................................................P810,000

Selling and administrative..............P20.....................................................................P243,000

In its first year of operations, Eudora produced 60,000 propellers but only sold 54,000.

1. What is the total cost that would be assigned to Eudora's finished goods inventory at the end of the first year of operations under the variable costing method?

2. At what amount will Eudora report its cost of goods sold for this first year for external reporting purposes?

3. Which costing method (variable or absorption) will generate a higher net operating income in Eudora's first year of operations and by how much?

PROBLEM 2

Selena Industries manufactures a single product. Variable production costs are P20 and fixed production costs are P150,000. Selena uses a normal activity of 10,000 units to set its standard costs. Selena began the year with no inventory, produced 11,000 units, and sold 10,500 units.

18. Ending inventory under variable costing and absorption costing would be?

19. The volume variance under variable costing and absorption costing would be ?

20. By how much would the income between the two methods would differ?