Grehan Company produces and sells wooden pallets that are used in moving and stacking materials. The operating costs for the past year were as follows: Variable costs per unit: Direct materials $3.60 Direct labor 2.00 Variable overhead 0.40 Variable selling expenses 0.30 Fixed costs per year: Fixed overhead $180,000 Fixed selling and administrative 70,000 During the year, Grehan produced 200,000 wooden pallets and sold 207,000 at $10 each. Grehan had 9,300 pallets in beginning finished goods inventory; costs have not changed from last year to this year. An actual costing system is used for product costing. Required 1. What per-unit inventory cost will be reported on Grehan’s balance sheet at the end of the year? What will be the reported income? 2. What would the per-unit inventory cost be under variable costing? Does this dif- fer from the unit cost computed in Requirement 1? Why? What would income be using variable costing? 3. Reconcile the difference between the variable-costing and absorption-costing income figures. 4. Suppose that Grehan Company had sold 196,700 pallets during the year. What is the absorption-costing income? What is the variable-costing income? 5. Reconcile the difference between the variable-costing and absorption-costing income figures in requirement 4.
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