Cheung Company produced 10,000 units during the past year, but only 8,500 of the units were sold. The following additional information is also available.
- Direct materials used $70,000
- Direct labor incurred $30,000
- Variable manufacturing overhead $25,000
- Fixed manufacturing overhead $40,000
- Fixed selling and administrative expenses $70,000
- Variable selling and administrative expenses $10,000
There was no work-in-process inventory at the beginning of the year, nor did Cheung have any beginning finished goods inventory.
Instructions
(a) What would be Cheung Company's finished goods inventory cost on December 31under variable costing?
(b) Which costing method, absorption or variable costing, would show a higher net income for the year? By what amount?