Tenley Company produces and sells wooden pallets that are used for moving and stacking materials. The operating costs for the past year were as follows:
Variable costs per unit:
Direct materials..................... $3.35
Direct labor........................... $1.78
Variable overhead.................... $1.60
Variable selling....................... $0.90
Fixed costs per year:
Fixed overhead................... $180,000
Selling and administrative........ $96,000
During the year, Tenley produced 300,000 wooden pallets and sold 306,500 at $9 each. Tenley had 11,300 pallets in beginning finished goods inventory; costs have not changed from last year to this year. An actual costing system is used for product costing.
Required:
1. What is the per-unit inventory cost that will be reported on Tenley's balance sheet at the end of the year? How many units are in ending inventory? What is the total cost of ending inventory?
2. Calculate absorption-costing operating income.
3. Conceptual Connection: What would the per-unit inventory cost be under variable costing? Does this differ from the unit cost computed in Requirement 1? Why?
4. Calculate variable-costing operating income.
5. Suppose that Tenley Company had sold 296,700 pallets during the year. What would absorption-costing operating income have been? Variable-costing operating income?