TroutPro Co. manufactures fishing equipment. During 2010, total costs associated with manufacturing 35,000 fly-cast fishing rods (a new product introduced this year) were as follows:
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $372,500
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,000
Variable manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . 67,500
Fixed manufacturing overhead. . . . . . . . . . . . . . . . . . . . . . . . . 105,000
Required:
a. Calculate the cost per fishing rod under both variable costing and absorption costing.
b. If 750 of these fishing rods were in finished goods inventory at the end of 2010, by how much and in what direction (higher or lower) would 2010 operating income be different under variable costing than under absorption costing?
c. Express the fishing rod cost in a cost formula. What does this formula suggest the total cost of making an additional 500 fishing rods would be?