Witherspoon Company produced 20,000 units during its first year of operations and sold 19,350 units. The company chose practical activity—at 20,000 units—to compute its predetermined overhead rate. Manufacturing costs are as follows:

Direct materials                                               $120,600

Direct labor                                                        90,000

Expected and actual variable overhead                       26,400 

Expected and actual fixed overhead                           68,000

 

Required

1.    Calculate the unit cost and the cost of finished goods inventory under absorption costing.

2.    Calculate the unit cost and the cost of finished goods inventory under variable costing.

3.    What is the dollar amount that would be used to report the cost of finished goods inventory to external parties. Why?