Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 45

Variable Costing, Absorption Costing
During its first year of operations, Snobegon, Inc. (located in Lake Snobegon, Minnesota), produced 40,000 plastic snow scoops. Snow scoops are oversized shovel-type scoops that are used to push snow away. Unit sales were 38,200 scoops. Fixed overhead was applied at $0.75 per unit produced. Fixed overhead was underapplied by $2,900. This fixed overhead variance was closed to Cost of Goods Sold. There was no variable overhead variance. The results of the year's operations are as follows (on an absorption-costing basis):

Required:
1. Calculate the cost of the firm's ending inventory under absorption costing. What is the cost of the ending inventory under variable costing? (Round unit costs to five significant digits.)
2. Prepare a variable-costing income statement. Reconcile the difference between the two income figures.