Outback Corporation manufactures rechargeable flashlights in Brisbane, Australia. The firm uses an absorption costing system for internal reporting purposes; however, the company is considering using variable costing. Data regarding Outback's planned and actual operations for 20x1 follow: Budgeted Costs Per Unit Total Actual Costs Direct material $ 12.50 $ 1,637,500 $ 1,487,500 Direct labor 10.00 1,310,000 1,190,000 Variable manufacturing overhead 4.20 550,200 499,800 Fixed manufacturing overhead 4.40 576,400 588,400 Variable selling expenses 8.00 1,048,000 912,000 Fixed selling expenses 7.30 956,300 956,300 Variable administrative expenses 2.60 340,600 296,400 Fixed administrative expenses 2.40 314,400 323,400 Total $ 51.40 $ 6,733,400 $ 6,253,800 Planned Activity Actual Activity Beginning finished-goods inventory in units 37,000 37,000 Sales in units 131,000 114,000 Production in units 131,000 119,000 The budgeted per-unit cost figures were based on Outback producing and selling 131,000 units in 20x1.
Outback uses a predetermined overhead rate for applying manufacturing overhead to its product. A total manufacturing overhead rate of $8.60 per unit was employed for absorption costing purposes in 20x1. Any overapplied or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the end of the year. The 20x1 beginning finished-goods inventory for absorption costing purposes was valued at the 20x0 budgeted unit manufacturing cost, which was the same as the 20x1 budgeted unit manufacturing cost. There are no work-in-process inventories at either the beginning or the end of the year. The planned and actual unit selling price for 20x1 was $71.30 per unit. Required: Compute the difference between Outback Corporation's 20x1 reported income calculated under absorption costing and calculated under variable costing.