Consider the Following Cost and Production Information for Darrell Building

Essay

Consider the following cost and production information for Darrell Building Components, Inc.
Additional information:
∙ Sales revenue: $5,200,000.
∙ Beginning inventory: $275,000.
∙ The only spending increase was for materials cost due to increased production. All other spending as shown above was unchanged.
∙ Sales of all parts are the same as the number of units produced.
Darrell Building Components, Inc. uses the absorption costing method.
Required:
(a) Compute the (1) gross margin, (2) operating income, and (3) ending inventory for Darrell Building Components, Inc.
(b) Assume that production of part D-1251 increases by 25 units during the given period (sales remain constant). Re-compute the above amounts.
(c) Thane Smith, the cost manager of Darrell Building Components, argues with the controller that variable costing is a better method for product costing. Using the information in part (b) above, re-compute the operating income for Darrell Building Components using variable costing. Explain any differences in the operating incomes obtained under the two different methods.