Question

A business operated at 100% of capacity during its first month and incurred the following costs:

Production costs (19,000 units):
Direct materials	$181,000
Direct labor	235,000
Variable factory overhead	258,500
Fixed factory overhead	95,500	$770,000
Operating expenses:
Variable operating expenses	$128,700
Fixed operating expenses	46,900	175,600

If 2,000 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable costing balance sheet?

a.$81,053

b.$84,547

c.$99,537

d.$71,020

Answer 1

Answer is $71,000

Variable cost of goods manufactured = Direct materials + Direct labor + Variable factory overhead
Variable cost of goods manufactured = $181,000 + $235,000 + $258,500
Variable cost of goods manufactured = $674,500

Variable cost per unit = Variable cost of goods manufactured / Units produced
Variable cost per unit = $674,500 / 19,000
Variable cost per unit = $35.50

Cost of ending inventory = Variable cost per unit * Units in ending inventory
Cost of ending inventory = $35.50 * 2,000
Cost of ending inventory = $71,000