Question

During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per unit, Direct labor, $3 per unit, Variable overhead, $4 per unit, and Fixed overhead, $250,000. The company produced 25,000 units, and sold 20,000 units, leaving 5,000 units in inventory at year-end. What is the value of ending inventory under absorption costing

Answer 1

Value of closing inventory under absorption costing = $110,000

Step-by-step explanation:

Total cost of manufacturing = Variable + Fixed

Variable = Material + Labor + Overhead = $5 + $3 + $4 = $12

Fixed = Overhead = $250,000

Total expenses $12
`*` 25,000 = $300,000

Add: Fixed Overheads = $250,000

Total cost for 25,000 units = $550,000

Cost per unit = $550,000/25,000 = $22

Value of closing inventory = $22
`*` 5,000 = $110,000

Final Answer

Value of closing inventory under absorption costing = $110,000