Question

A business operated at 100% of capacity during its first month and incurred the following costs:

Production costs (10,000 units):
Direct materials: $10,000
Direct labor: $5,000
Variable manufacturing overhead:, $2,000
Fixed manufacturing overhead: $3,000
Selling and administrative expenses:
Variable selling and administrative expenses:$2,000
If 2,000 units remain unsold at the end of the month and sales are $30,000, what is the ending balance in Finished Goods Inventory?
What is the cost of goods manufactured?
(a) $20,000
(b) $22,000
(c) $23,000
(d) $25,000

Answer 1

The ending balance in Finished Goods Inventory is $22,000 and the cost of goods manufactured is $22,000.

Step-by-step explanation:

The ending balance in Finished Goods Inventory can be calculated by subtracting the units sold from the units produced. In this case, 10,000 units were produced and 8,000 units were sold, leaving 2,000 units unsold. Since the production costs were incurred for all 10,000 units, the ending balance in Finished Goods Inventory would be the cost of those unsold units. The cost of goods manufactured can be calculated by adding up the production costs, which include direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead. Therefore, the ending balance in Finished Goods Inventory would be the cost of the unsold units, which is $22,000. Therefore, the correct answer is (b) $22,000.