Question

Inventory Valuation under Absorption Costing and Variable Costing

At the end of the first year of operations, 4,900 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows:

Direct materials	$35.80
Direct labor	18.90
Fixed factory overhead	5.70
Variable factory overhead	5.00

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.

Absorption costing	$fill in the blank 1
Variable costing	$fill in the blank 2

Answer 1

Solution :

(a)	Absorption Costing (4,900 Units * $ 65.40)	$ 320,460
(b)	Variable Costing (4,900 Units * $ 59.70)	$ 292,530

Working :

Cost per Unit Under Absorption Costing :

Direct Material	$ 35.80
Direct Labor	$ 18.90
Variable OH	$ 5.00
Fixed Factory OH	$ 5.70
Cost per Unit	$ 65.40

Cost per Unit Under Variable Costing :

Direct Material	$ 35.80
Direct Labor	$ 18.90
Variable OH	$ 5.00
Cost per Unit	$ 59.70

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