Trendy manufacturing has made available the following data (corresponding to the
ID: 2562713 • Letter: T
Question
Trendy manufacturing has made available the following data (corresponding to the most recent accounting period):
Fixed manufacturing costs $12,000
Variable manufacturing costs $ 8 per unit
Variable selling and administrative costs $3 per unit
Fixed selling and administrative costs $5,000
Trendy produced 1,000 units and sold 80% of its production. The beginning inventory of finished goods for the period is zero.
The selling price is $25 per unit.
The cost of ending inventory under variable costing system is
$2,400 more than the cost of ending inventory under absorption costing system
$4,000 more than the cost of ending inventory under absorption costing system
$2,400 less than the cost of ending inventory under absorption costing system
$4,000 less than the cost of ending inventory under absorption costing system
$1,600 less than the cost of ending inventory under absorption costing system.
A.$2,400 more than the cost of ending inventory under absorption costing system
B.$4,000 more than the cost of ending inventory under absorption costing system
C.$2,400 less than the cost of ending inventory under absorption costing system
D.$4,000 less than the cost of ending inventory under absorption costing system
E.$1,600 less than the cost of ending inventory under absorption costing system.
Explanation / Answer
CALCULATION OF PRODUCTION COST UNDER VARIABLE COSTING Particulars Amount Variable Manufacturing Cost $ 8.00 Per unit Total Production cost $ 8.00 Per unit Closing stock is 200 units (20% of 000 units) Closing stock value = Closing inentory * Variable manufacturing Cost Closing stock value = 200 units * $ 8 Closing stock value = $ 1,600 CALCULATION OF PRODUCTION COST UNDER ABSORPTION COSTING Particulars Amount Variable Manufacturing Cost $ 8.00 Per unit Fixed Manufacturing Cost ($12,000 / 1000 units)= $ 12.00 Per unit Total Production cost $ 20.00 Per unit Closing Stock = 200 units * $ 20 Per unit = $ 4,000.00 Calculation of difference in absorption costing and variable Costing Difference = Closing stock as per Absorption - Closing stock as per variable costing Difference = $ 4,000 - $ 1,600 = $ 2,400 Answer = Option C = $2,400 less than the cost of ending inventory under absorption costing system
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