Question

A company manufactured 1,000 units of product during the year and sold 800 units. Costs incurred during the current year are as follows:

Direct materials and direct labor $7,000
Indirect materials and indirect labor 2,000
Insurance on manufacturing equipment 3,000
Advertising 1,000
1. What amount should be reported as inventory in the company’s year-end balance sheet?

Answer 1

$2,400

Step-by-step explanation:

Total production Cost:

= Direct materials and direct labor + Indirect materials and indirect labor + Insurance on manufacturing equipment

= $7,000 + $2,000 + $3000

= $12,000

Amount should be reported as inventory in the company’s year-end balance sheet:

= (Total production Cost ÷ Units manufactured) × (Units manufactured - Units sold)

= ($12,000 ÷ 1,000) × (1,000 - 800)

= $12 × 200

= $2,400