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Variable Costing, Absorption Costing

During its first year of operations, Snobegon, Inc. (located in Lake Snobegon, Minnesota), produced 40,500 plastic snow scoops. Snow scoops are oversized shovel-type scoops that are used to push snow away. Unit sales were 39,000 scoops. Fixed overhead was applied at $0.75 per unit produced. Fixed overhead was underapplied by $3,000. 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):

Sales (39,000 units @ $20) $780,000

Less: Cost of goods sold 547,760

Gross margin $232,240

Less: Selling and administrative expenses (all fixed) 184,500

Operating income $ 47,740

Required:

1. Calculate the cost of the firm's ending inventory under absorption costing. Round unit cost to five decimal places. Round your final answer to the nearest dollar. $__________

What is the cost of the ending inventory under variable costing? Round unit cost to five decimal places. Round your final answer to the nearest dollar.

$__________

2. Prepare a variable-costing income statement. Round the unit cost to five decimal places, when required. Round your final answers to the nearest dollar. Use the rounded values in subsequent computations.

Snobegon, Inc. Variable-Costing Income Statement For the First Year of Operations

Purchase Price $____________

Sales Price

Material Price

None

Fixed Over Head $____________

Fixed Selling and administrative expenses

Sales

Variable Cost of Goods sold

Contribution Margin: $______________

Less:

Fixed overhead $____________

Fixed selling and administrative expenses

Sales Variable cost of goods sold

Operating Income: $______________

What is the difference between the two income figures?

$__________

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