Exercise Four (4 Points) Part A Dimmick Corporation produces and sells a single

Question

Exercise Four (4 Points) Part A Dimmick Corporation produces and sells a single product at $40 per unit. During 2007, the company produced 200,000 units, 160,000 of which were sold during the year. All ending inventory was in finished goods inventory; there was no inventory on hand at the beginning of the year. The following data relate to the company's production process: Direct materials Direct labor Variable Manufacturing overhend Fixed Manufacturing overhead Variable marketing and administrative Fixed marketing and administrative $550,000 400,000 100,000 300,000 160,000 110,000 Required: Calculate the following. (a) Assuming that the company prepares their financial statements using absorption costing, what would be the value of their inventory on the Balance Sheet? (b) Assuming that the company prepares their financial statements using variable costing, what would be the value of their inventory on the Balance Sheet?

Explanation / Answer

1) Solution: The ending inventory using absorption costing: $270,000

Working:

($550,000 + $400,000 + $100,000 + $300,000) / 200,000

1,350,000 / 200,000

$6.75

40,000 units * $6.75 = $270,000

2) Solution: The ending inventory using variable costing: $210,000

Working:

= ($550,000 + $400,000 + $100,000) / 200,000

= $1,050,000 / 200,000

= $5.25

40,000 units * $5.25 = $210,000

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