Question - Altoona Valve Company's planned production for the year just ended was 20,000 units. This production level was achieved, and 21,000 units were sold. Other data follow:
Direct Material used $300,000
Direct labor incurred $150,000
Fixed manufacturing overhead $210,000
Variable manufacturing overhead $100,000
Fixed selling and administrative expenses $175,000
Variable selling and administrative expenses $52,500
Finished goods inventory, January 1 2,000 units
The cost per unit remained the same in the current year as in the previous year. There were no work-in-process inventories at the beg. of the year.
1. What would be Altoona's finished-goods inventory cost on Dec 31 under the variable costing method?
2. Which costing method, absorption or variable costing, would show a higher operating income for the year? By what amount?