Outback Corporation manufactures tactical LED flashlights in Brisbane, Australia. The firm uses an absorption costing system for internal reporting purposes; however, the company is considering using variable costing. Data regarding Outback’s planned and actual operations for 20x1 follow: Budgeted Costs
Per Unit Total Actual Costs
irect material $12.10 $1,681,900 $1,585,100
Direct labor 9.30 1,292,700 1,218,300
Variable manufacturing
overhead 4.60 639,400 602,600
Fixed manufacturing
overhead 4.10 569,900 577,900
Variable selling
expenses 7.30 1,014,700 883,300
Fixed selling expenses 7.90 1,098,100 1,098,100
Variable administrative
expenses 2.80 389,200 338,800
Fixed administrative
expenses 2.70 375,300 381,300
Total $50.80 $7,061,200 $6,685,400
Planned Activity Actual Activity
Beginning finished-goods inventory in units 43,000 43,000
Sales in units 139,000 121,000
Production in units 139,000 131,000
The budgeted per-unit cost figures were based on Outback producing and selling 131,000 units in 20x1. Outback uses a predetermined overhead rate for applying manufacturing overhead to its product. A total manufacturing overhead rate of $8.70 per unit was employed for absorption costing purposes in 20x1. Any overapplied or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the end of the year. The 20x1 beginning finished-goods inventory for absorption costing purposes was valued at the 20x0 budgeted unit manufacturing cost, which was the same as the 20x1 budgeted unit manufacturing cost. There are no work-in-process inventories at either the beginning or the end of the year. The planned and actual unit selling price for 20x1 was $71.40 per unit.
Required:
Was Outback’s 20x1 operating income higher under absorption costing or variable costing?
Also, compute the following:
1. The value of Outback Corporation’s 20x1 ending finished-goods inventory under absorption costing.
2. The value of Outback Corporation’s 20x1 ending finished-goods inventory under variable costing.
3. The difference between Outback Corporation’s 20x1 reported operating income calculated under absorption costing and calculated under variable costing.