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Nick Sales. Inc. has just completed its first year of operations. The company has not had...

Nick Sales. Inc. has just completed its first year of operations. The company has not had ant sales to date. Nick has incurred the following costs associated with its production as of December 31, Year 1

Direct Materials (V) $45,000

Production Labor(V) $35,000

Bookkeeper salary (F) 28,000

Factory Itilities (V) 18,500

Office rent (F) 12,000

Factory supervisor salary (F) 9,600

Machine maintenance contract (F) 7,500

1. Under variable costing, what is the inventory amount shown on the balance sheet at December 31, Year 1?

$155,600

$115,600

$98,500

$80,000

2. Now suppose that all other details remain the same except that the company sold half of its production in year 1 for 150,000. What will be its income under absorption costing?

$54,450

$43,650

$52,200

$72,200

3. Now suppose that all other details remain the same except that the company sold the remaining inventory for $140,000 in year 2. What will be its income under variable costing? In year 2, the company had no manufacturing expenses and went out of business.

$44,450

$33,650

$82,200

$90,750

Business   Accounting   
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Answer #1
1) Inventory under the variable costing = Variable manufacturing costs = $45000+35000+18500=$98500
2) Inventory value in absorption costing = Total of all costs = $155600
Income on the sale of half of inventory = 150000 - (155600/2) = $72200
3) Value of half of Inventory carried to year 2 under variable costing = 98500/2= $49250
Income on the sale of half of inventory in year 2 = 140000 - 49250 = $90750
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