Problem

Pinellas Pillow Company's planned production for the year just ended was 21,400 units. This production level was achieved, but only 18,000 units were sold. Other data follows:

Direct material used $ 624,880
Direct labor incurred 327,420
Fixed manufacturing overhead 455,820
Variable manufacturing overhead 233,260
Fixed selling and administrative expenses 357,380
Variable selling and administrative expenses 97,370
Finished-goods inventory, January 1 None

There were no work-in-process inventories at the beginning or end of the year.

Required:

1. What would be Pinellas Pillow Company's finished-goods inventory cost on December 31 under the variable-costing method?

2-a. Which costing method, absorption or variable costing, would show a higher operating income for the year?

2-b. By what amount?