Question

Cutterski Corporation manufactures a propeller. Shown below is Cutterski's cost structure:

	Variable cost per propeller	Total fixed cost for the year
Manufacturing cost	$122	$523,600
Selling and administrative expense	$ 22	$129,500

In its first year of operations, Cutterski produced 61,600 propellers but only sold 51,800.

What is the total cost that would be assigned to Cutterski's finished goods inventory at the end of the first year of operations under variable costing?

$1,411,200

$1,195,600

$1,519,000

$1,278,900

Answer 1

Computation of finished goods inventory

Production = 61600 propellers

Sales = 51800 propellers

Closing Inventory = 61600 - 51800 propellers = 9800 propellers

Finished goods Inventory Value = 9800 propellers * $ 122 = $ 1195600

Since, under Variable Costing only variable costs are included, therefore,

Total cost that would be assigned to Cutterski's finished goods inventory at the end of the first year of operations under variable costing = $ 1195600

Correct answer is b) $ 1195600