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Krepps Corporation produces a single product. Last year, Krepps manufactured 33,

ID: 2523580 • Letter: K

Question

Krepps Corporation produces a single product. Last year, Krepps manufactured 33,110 units and sold 27,600 units. Production costs for the year were as follows: Direct materials $ 248,325 Direct labor $ 175,483 Variable manufacturing overhead $ 294,679 Fixed manufacturing overhead $ 463,540 Sales totaled $1,242,000 for the year, variable selling and administrative expenses totaled $140,760, and fixed selling and administrative expenses totaled $221,837. There was no beginning inventory. Assume that direct labor is a variable cost. Under absorption costing, the ending inventory for the year would be valued at:

Explanation / Answer

Closing inventory under absorption costing:

Particulars

Amount ($)

Direct materials

248325

Direct labour

175483

Variable manufacturing overhead

294679

Fixed manufacturing overhead

463540

Total cost of production

1182027

Number of units

33110

Less: Units sold

27600

Closing inventory in units

5510

Closing stock value (1182027 x 5510 / 33110)

196707

Note: It has been assumed that the fixed manufacturing overhead is for exactly 33110 units and accordingly, the amount has been apportioned between the unit of production to determine the cost of production and the closing inventory.     

Thus, the closing inventory $196,707.

Particulars

Amount ($)

Direct materials

248325

Direct labour

175483

Variable manufacturing overhead

294679

Fixed manufacturing overhead

463540

Total cost of production

1182027

Number of units

33110

Less: Units sold

27600

Closing inventory in units

5510

Closing stock value (1182027 x 5510 / 33110)

196707