Question

At the end of the first year of operations, 6,500 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows: Direct materials $33.00 Direct labor 18.60 Fixed factory overhead 5.60 Variable factory overhead 4.90 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

Ans.a	Cost of finished goods inventory (absorption costing) = Unit product cost * units in finished goods inventory
				62.1 * 6500
				403650
	Unit product cost under absorption costing
	Particulars	Amount
	Direct materials	33
	Direct labor	18.6
	Fixed factory overhead	5.6
	Variable overhead	4.9
	Total unit product cost	62.1
Ans.b	Cost of finished goods inventory (variable costing) = Unit product cost * units in finished goods inventory
				56.5 * 6500
				367250
	Unit product cost under variable costing
	Particulars	Amount
	Direct materials	33
	Direct labor	18.6
	Variable overhead	4.9
	Total unit product cost	56.5