Question

Canarie Manufacturing produces snow shovels. The selling price per snow shovel is $29.00. There is no beginning inventory. Costs involved in production are: Direct material $4.00 Direct labor 4.00 Variable manufacturing overhead 3.00 Total variable manufacturing costs per unit $11.00 Fixed manufacturing overhead per year $233,550 In addition, the company has fixed selling and administrative costs of $162,400 per year. During the year, Canarie produces 51,900 snow shovels and sells 46,500 snow shovels. Exercise 5.11 What is the value of ending inventory using full costing? Value of ending inventory

Answer 1

Value of ending inventory = $97,650

Explanation:

Full costing is a costing method that consider all the costs including all variable and fixed costs in determining the cost of producing products or services.

From the question, we have the following:

Total variable manufacturing costs per unit = $11.00

Fixed manufacturing overhead per year = $233,550

Number of snow shovels produced during the year = 51,900

Number of snow shovels sold during the year = 46,500

Therefore, we have:

Total variable manufacturing costs incurred during the year = Total variable manufacturing costs per unit * Number of shovels produced during the year = $11.00 * 51,900 = $570,900

Based on full costing, we have:

Total cost of producing snow shovel during the year = Fixed manufacturing overhead per year + Total variable manufacturing costs incurred during the year = $233,550 + $570,900 = $804,450

Production cost per unit = Total cost of producing snow shovel during the year / Number of snow shovels produced during the year = $804,450 / 51,900 = $15.50

Number of ending inventory = Number of snow shovels produced during the year - Number of snow shovels sold during the year = 51,900 - 46,500 = 6,300

Value of ending inventory = Number of ending inventory * Production cost per unit = 6,300 * $15.50 = $97,650