X Comapny produces a single product. Last year, it manufactured 17,000 units and

Question

X Comapny produces a single product. Last year, it manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows:

Dicrect Materials $153,000
Direct Labor $110,500
Variable Manf Overhead $204,000
Fixed Manf Overhead $255,000

Sales were $780,000 for the year, variable selling and admin expenses were $88,400, and fixed selling and admin expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost.

Under absorption costing, what is the the carrying value on the balance sheet of the ending inventory for the year?

Explanation / Answer

units in ending inventory = beg inventory + units produced - units sold = 0 + 17,000 - 13,000 = 4,000 Total absorption cost = DM + DL + VOH + FOH = 153,000 + 110,500 + 204,000 + 255,000 = 722,500 Absorption costing unit cost = Total absorption cost / Units produced = 722,500 / 17,000 = 42.50 Value of ending inventory = units in EI x absorption costing unit cost = 4,000 x 42.50 = $170,000 (ANS)

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