Question

(a) Assuming that Sheridan must hold three months of the component in inventory, what is the cost of the three-month inventory using variable costing? What is the cost of inventory using absorption costing?

Answer 1

Sheridan Company

Income Statement

For the year ended December 31, 202x

Sales revenue $170,400

Cost of goods sold ($129,600)

Gross profit $40,800

Period costs ($24,000)

Operating income $16,800

cost of goods manufactured 2019 (or 2020, it is the same)= (20 x $4,500) + $18,000 = $108,000 / 20 = $5,400 per unit

COGS 2020 = 24 x $5,400 = $129,600

sales revenue = 24 x $7,100 = $170,400