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Altoona Valve Company's Finished-Goods Inventory

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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?

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Solution Summary

This solution is comprised of a detailed explanation to find Altoona's finished-goods inventory cost on Dec 31 under the variable costing method and absorption costing method.

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1. What would be Altoona's finished-goods inventory cost on Dec 31 under the variable costing method?

First, we need to compute the unit product cost under both absorption and variable costing.

Absorption costing

Direct materials ($300,000/20,000 units) 15.0
Direct labor ($150,000/20,000 units) 7.5
Variable manufacturing overhead ($100,000/20,000 units) ...

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