Question

A manufacturer reports the following costs to produce 10,000 units in its first year of operations: Direct materials, $10 per unit, Direct labor, $6 per unit, Variable overhead, $70,000, and Fixed overhead, $120,000. Of the 10,000 units produced, 9,200 were sold, and 800 remain in inventory at year-end. Under absorption costing, the value of the inventory is:

A. 12,800
B. 18,400
C. 28,000
D. 22,400
E. 13,600

Answer 1

c. $28,000

Step-by-step explanation:

The computation of value of the inventory is shown below:-

Product cost - Absorption Costing

Direct Materials = $10

Direct Labor = $6

Variable overhead

= $70,000 ÷10,000 units

= $7

Fixed overhead

= $120,000 ÷ 10,000 units

= $12

Total product cost per unit = $10 + $6 + $7 + $12

= $35

Value of inventory = Remain in inventory × Total product cost per unit

= 800 units × $35 per unit

= $28,000