Question

Advanced Company reports the following information for the current year. All beginning inventory amounts equaled $0 this year.Units produced this year 25,000 unitsUnits sold this year 15,000 unitsDirect materials $9 per unitDirect labor $11 per unitVariable overhead $75,000 in totalFixed overhead $137,500 in totalGiven Advanced Company's data, compute cost of finished goods in inventory under absorption costing.A. $285,000B. $712,500C. $427,500D. $230,000E. $345,000

Answer 1

Full cost per unit $

Direct material 9.00

Direct labour 11.00

Variable overhead ($75,000/25,000) 3.00

Fixed overhead ($137,500/25,000) 5.50

Full cost per unit 28.50

Finished goods in inventory

= Production - Sales

= 25,000 units - 15,000 units

= 10,000 units

Cost of finished goods in inventory

= 10,000 units x $28.50

= $285,000

The correct answer is A

Step-by-step explanation:

In this case, there is need to calculate the full cost per unit, which is the aggregate of material cost per unit, direct labour cost per unit, variable overhead cost per unit and fixed overhead cost per unit. Thereafter, we will determine the units of finished goods inventory, which is production minus sales. Finally,we will determine the cost of finished goods in inventory by valuing the finished goods in inventory at the full cost calculated above.