Easton Pump Company\'s planned production for the year just ended was 19,000 uni

Question

Easton Pump Company's planned production for the year just ended was 19,000 units. This production level was achieved, and 20,600 units were sold. Other data follow Direct material used Direct labor incurred Fixed manufacturing overhead Variable manufacturing overhead Fixed selling and administrative expenses Variable selling and administrative expenses Finished-goods inventory, January 1 $590,980 296,400 418,000 199,588 319,200 103,550 2,200 units The cost per unit remained the same in the current year as in the previous year. There were no beginning or end of the year work-in-process inventories at the Required: 1. What would be Easton Pump Company's finished-goods inventory cost on December 3t under the variable-costing method? (Do 2-a. Which costing method, absorption or variable costing, would show a higher operating income for the year? 2-b. By what amount? (Do not round intermediate calculetions.) not round intermediate calculetions.) 34 320 cost s 22.000

Explanation / Answer

Answer to Part 2-b.

Predetermined Overhead Rate = Fixed Manufacturing Overhead / Planned Production
Predetermined Overhead Rate = 418,000 / 19,000
Predetermined Overhead Rate = $22

Difference in Fixed Overhead expensed under Absorption and Variable Costing= Change in Inventory Units * Predetermined Overhead Rate
Change in Inventory Units = 20,600 – 19,000 = 1,600 Units
Difference in Fixed Overhead expensed under Absorption and Variable Costing= 1,600 * $22
Difference in Fixed Overhead expensed under Absorption and Variable Costing= $35,200

As, the Inventory during the year decreased by 1,600 Units, the income as per Absorption Costing would be lesser by $35,200 as compared to Variable Costing .

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