RECOMMENDED!!Monrad Corporation uses variable costing for internal reporting purpose

  

Absorption vs variable costingMonrad Corporation uses variable costing for internal
reporting purposes. Its preadjusted trial balance for the year ended December
31 shows:Cost of goods sold (at variable cost) $750,000Finished goods inventory (at variable cost) 75,000Nonvariable product costs 462,000An analysis shows that cost of goods sold represents 30,000
direct labor hours, and finished goods inventory 3,000 direct labor hours.
Monrad feels that the best way of allocating a fair share of nonvariable
production costs to products is on the basis of direct labor hours.Required:a. Prepare an adjusting entry that will put cost of goods
sold and finished goods inventory on an absorption costing basis.b. What will be the difference between pretax income on a
variable costing basis and on an absorption costing basis (assume zero
beginning of year finished goods inventory)?
c. What will be the December 31 amount of finished goods
inventory on an absorption costing basis?

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