Would The expense recorded be 2,700? Since the company only managed to sell 7,00

Question

Would The expense recorded be 2,700? Since the company only managed to sell 7,000 units, yet the remaning units are still considered to be an asset and can't be expensed.

2.Warren Company makes candy. During the most recent accounting period, Warren paid $3,000 for raw materials, $4,000 for labor, and $2,000 for overhead costs that were incurred to make candy. Warren started and completed 10,000 units of candy, of which 7,000 were sold. Based on this information, Warren would recognize which of the following amounts of expense on the income statement? a. $2,700 b. $6,300 c. $7,200 d. $9,000

Explanation / Answer

Solution : $6300 (option b).

First of all , we get the total expense on production: Raw material 3000 + Labor 4000 + Overhead 2000 = $9000

now we get the total production cost of units sold i.e. 7000 units = ($9000 / 10000 units ) * 7000 units = $6300 (option b).

Rest cost of $2700 belongs to unsold 3000 units are taken to balance sheet as closing stock.

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