Question

During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $4 per unit, Direct labor, $2 per unit, Variable overhead, $3 per unit, and Fixed overhead, $256,000. The company produced 32,000 units, and sold 26,500 units, leaving 5,500 units in inventory at year-end. What is the value of ending inventory under absorption costing

Answer 1

Ending inventory= $93,500

Step-by-step explanation:

Giving the following information:

Direct materials $4 per unit

Direct labor, $2 per unit

Variable overhead, $3 per unit

Fixed overhead, $256,000.

The company produced 32,000 units, and sold 26,500 units, leaving 5,500 units in inventory at year-end.

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.

First, we need to calculate the unitary production cost:

Unitary cost= 4 + 2 + 3 + (256,000 / 32,000)

Unitary cost= $17

Now, the ending inventory:

Ending inventory= 5,500*17= $93,500