Pinellas Pillow Company's planned production for the year ended was 10,000 units

. 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