Question

At the end of the first year of operations, 6,600 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows: Direct materials $41.60 Direct labor 18.20 Fixed factory overhead 6.00 Variable factory overhead 5.30 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

Results are below.

Step-by-step explanation:

The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.

The variable costing method incorporates all variable production costs (direct material, direct labor, and variable overhead).

Absorption costing:

Unitary cost= 41.6 + 18.2 + 5.3 + 6= $71.1

Ending inventory= 71.1*6,600= $469,260

Variable costing:

Unitary cost= 41.6 + 18.2 + 5.3= $65.1

Ending inventory= 65.1*6,600= $429,660