Question 1 Inventory Valuation under Absorption and Variable Costing with Decrea

Question

Question 1

Inventory Valuation under Absorption and Variable Costing with Decrease in Ending Inventory

The following information pertains to Chacon Inc. for last year:

Required:

1. Calculate the cost of one unit of product under absorption costing. Round your answer to the nearest cent.
$per unit

2. Calculate the cost of one unit of product under variable costing. Round your answer to the nearest cent.
$per unit

3. How many units are in ending inventory?
units

4. Calculate the cost of ending inventory under absorption costing.
$

5. Calculate the cost of ending inventory under variable costing.
$

Question 2

Inventory Valuation under Variable Costing

Lane Company produced 50,000 units during its first year of operations and sold 47,300 at $12 per unit. The company chose practical activity—at 50,000 units—to compute its predetermined overhead rate. Manufacturing costs are as follows:

Required:

1. Calculate the cost of one unit of product under variable costing. Round your interim calculations and final answer to the nearest cent.
$ per unit

2. Calculate the cost of ending inventory under variable costing.
$

Beginning inventory in units 7,000 Units produced 20,000 Units sold 23,700 Costs per unit: Direct materials $8.00 Direct labor $4.00 Variable overhead $2.25 Fixed overhead* $4.15 Variable selling expenses $3.00 Fixed selling and administrative expenses $24,300 * Fixed overhead totals $83,000 per year.

Explanation / Answer

Question 1

Question 2

Computation of Unit Product Cost Absorption Costing Variable Costing Direct Meterial $                            8.00 $                      8.00 Direct Labour $                            4.00 $                      4.00 Variable Manufactoring Overhead $                            2.25 $                      2.25 Fixed Manufactoring Overhead (75000/3000) $                            4.15 Unit Product Cost $                         18.40 $                   14.25 Notice that the fixed manufacturing overhead cost has not been included while computing the cost of one unit under variable costing system. Selling and administrative expenses (both variable and fixed) are not relevant for the computation of unit product cost. Ending Inventory Beginning inventory 7000 Add: Units Produced 20000 Less: Units Sold -23700 Ending Inventory 3300 Cost of Ending Inventory Absorption Costing Variable Costing Ending inventory in units 3300 3300 Unit cost $                         18.40 $                   14.25 Cost of ending inventory $                 60,720.00 $           47,025.00

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