Question

# Inventory valuation under absorption costing and variable costing At the end of the first year of...

Inventory valuation under absorption costing and variable costing

At the end of the first year of operations, 20,800 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows:

 Direct materials \$34 Direct labor 13 Fixed factory overhead 20 Variable factory overhead 7

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.

 a. Cost of the finished goods inventory under the absorption costing: \$ b. Cost of the finished goods inventory under the variable costing:

Cost of Finished Goods Inventory: = Cost per Unit * Ending Finished Goods Unit

Absorption Costing :

Cost per unit = Direct labor +Direct material +Fixed Factory overhead +Variable Factory overhead

= \$34+13+20+7 = \$74 Per Unit

Cost of Finished Goods Inventory = \$74 *20,800

Variable Costing :

Cost per Unit = Direct Material + Direct labor + Variable Factory overhead

=34+13+7 = \$54 Per Unit

Cost of finished Goods inventory = \$54 *20,800

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