Question

Inventory Valuation under Absorption Costing

Amiens Company produced 20,000 units during its first year of operations and sold 18,900 at $17 per unit. The company chose practical activity—at 20,000 units—to compute its predetermined overhead rate. Manufacturing costs are as follows:

Direct materials	$ 80,000
Direct labor	101,400
Variable overhead	15,600
Fixed overhead	54,600

Required:

1. Calculate the unit cost for each of these four costs. Round your answers to the nearest cent.

Direct Materials Cost $

Direct Labor Cost $

Variable Overhead Cost $

Fixed Overhead Cost $

2. Calculate the cost of one unit of product under absorption costing. Round your answer to the nearest cent.

$

3. How many units are in ending inventory?

$

4. Calculate the cost of ending inventory under absorption costing.

$

Answer 1

1. Calculate the unit cost for each of these four costs.

Direct materials $ 80,000 / 20000 unit = $4 per unit

Direct labor 101,400 / 20000 unit = $5.07 per unit

Variable overhead 15,600 / 20000 unit = $ 0.78 per unit

Fixed overhead 54,600 / 20000 unit = $ 2.73 per unit  

here we divide 20000 unit because when company produce the product ,material will purchase for all 20000 unit , and other expenses also spend for 20000 unit .

2. Calculate the cost of one unit of product under absorption costing.

total cost = 4+5.07+0.78+2.73 = $ 12.58 one unit of product

3. How many units are in ending inventory?

answer = 20000 unit produced

= 18900 unit sold

1100 units are in stock

4. Calculate the cost of ending inventory under absorption costing.

$ 1100 * $12.58 = $ 13838