Question:
1. Spicer 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 ..................$ 2.45
Direct labor .........................2.10
Variable overhead ..................0.25
Variable selling .....................0.30
Fixed costs per year:
Fixed overhead ................180,000
Selling and administrative .....56,000
During the year, Spicer produced 200,000 wooden pallets and sold 208,000 at $9 each. Spicer had 11,300 pallets in beginning finished goods inventory; costs have not changed from last year to this year. An actual cost system is used for product costing.
Required:
1. What is the per-unit inventory cost that will be reported on Spicer'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 income.
3. 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 income.
5. Suppose that Spicer Company had sold 196,700 pallets during the year. What would absorption-costing income have been? Variable-costing income?