Question

ebook question content area inventory valuation under absorption costing and variable costing at the end of the first year of operations, 4,800 units remained in the finished goods inventory. the unit manufacturing costs during the year were as follows: line item description cost direct materials $33.50 direct labor 17.30 fixed factory overhead 6.80 variable factory overhead 6.00 determine the cost of the finished goods inventory reported on the balance sheet under (a) the absorption costing concept and (b) the variable costing concept.

Answer 1

(a) The cost of the finished goods inventory reported on the balance sheet under absorption costing is $305,280.

(b) The cost of the finished goods inventory reported on the balance sheet under variable costing is $273,024.

Step-by-step explanation:

To determine the cost of the finished goods inventory reported on the balance sheet under absorption costing and variable costing, we need to calculate the unit cost for each concept and then multiply it by the number of units in the inventory.

Under absorption costing, the unit cost includes direct materials, direct labor, fixed factory overhead, and variable factory overhead.

Unit cost under absorption costing = Direct materials + Direct labor + Fixed factory overhead + Variable factory overhead

= $33.50 + $17.30 + $6.80 + $6.00 = $63.60

Now, we can calculate the cost of the finished goods inventory under absorption costing:

Cost of finished goods inventory under absorption costing = Unit cost under absorption costing * Number of units in inventory

= $63.60 * 4,800 = $305,280

Therefore, the cost of the finished goods inventory reported on the balance sheet under absorption costing is $305,280.

Under variable costing, the unit cost only includes direct materials, direct labor, and variable factory overhead.

Unit cost under variable costing = Direct materials + Direct labor + Variable factory overhead

= $33.50 + $17.30 + $6.00 = $56.80

Now, we can calculate the cost of the finished goods inventory under variable costing:

Cost of finished goods inventory under variable costing = Unit cost under variable costing * Number of units in inventory

= $56.80 * 4,800 = $273,024

Therefore, the cost of the finished goods inventory reported on the balance sheet under variable costing is $273,024.