Question

nventory Valuation under Absorption Costing and Variable Costing

At the end of the first year of operations, 6,400 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows:

Direct materials	$41.40
Direct labor	19.40
Fixed factory overhead	6.20
Variable factory overhead	5.50

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	$
Variable costing	$

Answer 1

a.
	Absorption costing
Direct materials	41.40
Direct labor	19.40
Fixed factory overhead	6.20
Variable factory overhead	5.50
Unit cost	72.50
(*) Finished gooods units	6400
Cost of the finished goods inventory reported on the balance sheet	464000

b.
	Variable costing
Direct materials	41.40
Direct labor	19.40
Variable factory overhead	5.50
Unit cost	66.30
(*) Finished gooods units	6400
Cost of the finished goods inventory reported on the balance sheet	424320