Variable and Absorption Costing Use the following information to answer the foll
ID: 2407392 • Letter: V
Question
Variable and Absorption Costing
Use the following information to answer the following 2 multiple choice
questions:
Information taken from the accounting records of Holly Manufacturing for 2018:
There was no opening inventory.
Please do not give the answer only, please provide the process and calculation.
1. Based on the information (above) regarding Holly Manufacturing, calculate the
value of inventory at the end of the year, assuming absorption costing is used.
a) $90,000
b) $96,000
c) $72,000
d) $70,500
2. Based on the information (above) regarding Holly Manufacturing, calculate the
value of inventory at the end of the year, assuming variable costing is used.
a) $90,000
b) $96,000
c) $76,500
d) $70,500
overhead $60,000 Fixed manufacturing
overhead $130,000 Variable selling and
administrative costs $40,000 Fixed selling and
administrative costs $20,000 Units produced during
the year 40,000 Units in inventory at
the end of the year 6,000
Explanation / Answer
Under absorption cost fixed manufaturing overhead is included while calculating cost per unit of the product. Under variable costing only variable manufacturing expenses are included while calculting cost per unit of the product.
Selling and administrative expenses do not form a part of the valuation of inventory.
Absorption Costing Variable Costing Direct Materials 340,000 340,000 Direct Labour 70,000 70,000 Variable manufacturing overhead 60,000 60,000 Fixed Manufacturing overhead 130,000 - Total Cost 600,000 470,000 Units produced 40,000 40,000 Cost per unit 15.00 11.75 (Total Cost/ No of units) Units in inventory 6,000 6,000 Inventory cost 90,000 70,500 (Units in Inventory x Cost per unit)Related Questions
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