Question

Peterson Company's records for the year ended December 31 show that no finished goods inventory existed at January 1 and no work was in process at the beginning or end of the year. Net sales $1,400,000 Manufacturing costs Fixed 315,000 Variable 630,000 Operating expenses Fixed 140,000 Variable 98,000 Units manufactured 70,000 Units sold 60,000 What is Peterson's finished goods inventory cost at December 31 under the variable costing method?

Answer 1

Peterson's finished goods inventory cost under the variable costing method is $90,000, determined by the variable cost per unit multiplied by the remaining units in inventory at the year-end.

Step-by-step explanation:

To calculate Peterson's finished goods inventory cost at December 31 under the variable costing method, we need to consider only the variable costs associated with the production of the goods. Since no work was in process at the beginning or end of the year, we can assume all costs were for goods either sold or in finished goods inventory. The total variable manufacturing costs were $630,000 for 70,000 units manufactured. Since each unit cost the same to produce, the cost per unit is $630,000 / 70,000 units = $9 per unit. Peterson sold 60,000 units, leaving us with 70,000 - 60,000 = 10,000 units in inventory. Therefore, the finished goods inventory cost is 10,000 units × $9/unit = $90,000.

Answer 2

Peterson's finished goods inventory cost at December 31 under the variable costing method is $90,000

Step-by-step explanation:

The computation of the Peterson's finished goods inventory cost is shown below:

= (Variable manufacturing cost ÷ units manufactured) × units difference

= ($630,000 ÷ 70,000 units) × 10,000 units

= $90,000

The units difference would be equal to

= Units manufactured - units sold

= 70,000 - 60,000

= 10,000 units