Question

Last year, Richmon Company produced 10,000 units and sold 6,000 units at a price of $20. Costs for the last year were as follows: Direct materials $30,000 Direct labor 38,000 Variable factory overhead 8,000 Fixed factory overhead 40,000 Variable selling expense 5,000 Fixed selling expense 4,900 Fixed administrative expense 11,000 Fixed factory overhead is applied based on expected production. Last year, Richmon expected to produce 10,000 units. Assuming that beginning inventory was zero, what is the value of ending inventory under absorption costing? (Note: Round answers to the nearest dollar.) a.$38,000 b.$46,400 c.$10,000 d.$50,000 e.$31,000

Answer 1

The correct answer is B: $46,400

Step-by-step explanation:

The difference between absorption and variable costing is that the first one includes fixed manufacturing overhead in the manufacturing cost.

Giving the following information:

Absorption costing:

Direct materials= 30,000

Direct labor= 38,000

Variable factory overhead= 8,000

Fixed factory overhead= 40,000

Total= $116,000

Unitary cost= 116000/10000= $11.6

Ending finished inventory= 4000*11.6= $46,400