Langdon Company produced 10,440 units during the past year, but only 8,900 of th
ID: 2455445 • Letter: L
Question
Langdon Company produced 10,440 units during the past year, but only 8,900 of the units were sold. The following additional information is also available.
Direct materials used $107,066
Direct labor incurred $30,000
Variable manufacturing overhead $23,710
Fixed manufacturing overhead $62,640
Fixed selling and administrative expenses $69,250
Variable selling and administrative expenses $8,370
There was no work in process inventory at the beginning of the year, nor did Langdon have any beginning finished goods inventory.
Q.1 What would be Langdon Company’s finished goods inventory cost on December 31 under variable costing?
Q.2 Which costing method, absorption or variable costing, would show a higher net income for the year? By what amount?
Explanation / Answer
1Product cost under variable costing = (107066 +30000 +23710) / 10440
= 160776 / 10440
= $ 15.40 per unit
Ending units = 10440 -8900 = 1540 units
cost of ending inventory = 1540*15.40 =$ 23716
2) Absorption costing will show higher net income as some fixed manufacturing cost is deferred in ending inventory.
Unit cost under absorption costing = (107066+30000+23710+62640) / 10440
= 223416 / 10440
= $ 21.4
ending inventory cost = 21.4 * 1540
= 32956
Difference in net income = 32956 - 23716 = $ 9240 (net income will be higher)
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