Johnson Tools makes a unique workman’s tool. The company produces and sells approximately 500,000 units per year. The projected unit cost data for 2001 follows; the company uses standard full absorption costing and writes off all variances to Cost of Goods Sold.
The fixed overhead application rate is $0.16 per unit.
a. Calculate the per-unit inventory cost for variable costing.
b. Calculate the per-unit inventory cost for absorption costing.
c. The projected income before tax from variable costing is $223,000 at production and sales of 500,000 units and 490,000 units, respectively. Projected beginning and ending finished goods inventories are 30,000 and 40,000 units, respectively. Calculate the projected income before tax using absorption costing.
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