Question:
(Ending inventory valuation; absorption vs. variable costing) Harvard Hats Company produces baseball caps. In May 2000, the company manufactured 20,000 caps. May sales were 18,400 caps. The cost per unit for the 20,000 caps produced was
|
Direct material
|
$3.00
|
|
Direct labor
|
2.00
|
|
Variable overhead
|
1.00
|
|
Fixed overhead
|
1.50
|
|
Total
|
$7.50
|
There was no beginning inventory for May.
a. What is the value of ending inventory using absorption costing?
b. What is the value of ending inventory using variable costing?
c. Which accounting method, variable or absorption, would have produced the higher net income for May?