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Homework answers / question archive / Pinellas Pillow Company's planned production for the year ended was 10,000 units
Pinellas Pillow Company's planned production for the year ended was 10,000 units. This production level was achieved, but only 9,000 units were sold.
Direct material used $80,000
Direct labor incurred $40,000
Fixed manufacturing overhead $50,000
Variable manufacturing overhead $24,000
Fixed selling and administrative expenses $60,000
Variable selling and administrative expenses $9,000
Finished-goods inventory, Jan 1 None
There were no work-in-process inventories at the beg or end of the year.
1. What would be Pinellas Pillow Company'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?
3. Suppose Pinellas Pillow Company uses throughput costing, and direct material is its only unit level cost. What would be Pinellas' finished-goods inventory on Dec. 31?
. What would be Pinellas Pillow Company'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 ($80,000/10,000 units) 8.0
Direct labor ($40,000/10,000 units) 4.0
Variable manufacturing overhead ($24,000/10,000 units) 2.4
Fixed manufacturing overhead ($50,000/10,000 units) 5.0
19.4
Variable costing
Direct materials ($80,000/10,000 units) 8.0
Direct labor ($40,000/10,000 units) 4.0
Variable manufacturing overhead ($24,000/10,000 units) 2.4
14.4
Ending Finished-good inventory unit = Beginning Finished-good + Production - Units Sold
= 0 + 10,000 - 9,000
= 1,000 units
Under variable costing, the Altoona's finished-goods inventory cost on Dec 31 is equal to
1,000 units x $14.4 = $14,400
2. Which costing method, absorption or variable costing, would show a higher operating income for the year? By what amount?
Absorption costing would show a higher operating income for the year by the amount of
Difference in profits = difference in units sold x fixed overhead cost
and produced per unit
= (Qs - Qp) x $10.5 per unit
= 1,000 units x $5 per unit
= $5,000
3. Suppose Pinellas Pillow Company uses throughput costing, and direct material is its only unit level cost. What would be Pinellas' finished-goods inventory on Dec. 31?
Throughput costing treats all costs except those related to variable direct materials as period costs. Only direct materials costs are inventoriable.
1,000 units x $8 = $8,000
