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#7 Inventory Valuation under Absorption Costing and Variable Costing At the end of the first year...

#7

Inventory Valuation under Absorption Costing and Variable Costing

At the end of the first year of operations, 5,000 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows:

Direct materials $29.80
Direct labor 17.20
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 $

Homework Answers

Answer #1

Answer a.

Unit Product Cost = Direct Materials + Direct Labor + Fixed Factory Overhead + Variable Factory Overhead
Unit Product Cost = $29.80 + $17.20 + $5.60 + $4.90
Unit Product Cost = $57.50

Cost of Ending Inventory = Unit Product Cost * Number of units in ending inventory
Cost of Ending Inventory = $57.50 * 5,000
Cost of Ending Inventory = $287,500

Answer b.

Unit Product Cost = Direct Materials + Direct Labor + Variable Factory Overhead
Unit Product Cost = $29.80 + $17.20 + $4.90
Unit Product Cost = $51.90

Cost of Ending Inventory = Unit Product Cost * Number of units in ending inventory
Cost of Ending Inventory = $51.90 * 5,000
Cost of Ending Inventory = $259,500

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