The absorption costing ending inventory is, $55,000.
- For computing ending inventory under absorption costing, we need to first find out the units of ending inventory, and then do the proportion to each cost.
<h3>What is inventory absorption costing?</h3>
- Direct material, direct labor, and all overhead are all included in the value of inventory under absorption costing.
- The distinction between the two approaches is that management will favor one approach over the other when making internal decisions.
<h3>How do you find ending inventory using absorption costing?</h3>
- To the cost of purchases made during the period, add the cost of establishing inventory.
- This is the price of the products that are on sale.
- Calculate the anticipated cost of products sold by multiplying the gross profit margin by sales.
- To determine the ending inventory, deduct the cost of the items that can be sold from the cost of the items that were actually sold.
According to the question:
The units of ending inventory = Units produced - units sold.
= 5,200 units - 4,200 units.
= 1,000 units.
Now,
The material cost = Material cost × (ending inventory units ÷ units produced).
= $104,000 × (1,000 ÷ 5,200).
= $20,000.
The Variable conversion cost = Variable conversion cost × (ending inventory units ÷ units produced).
= $52,000 × (1,000 ÷ 5,200).
= $10,000.
The Fixed manufacturing cost = Fixed manufacturing cost × (ending inventory units ÷ units produced).
= $130,000 × (1,000 ÷ 5,200 ).
= $25,000.
So, the ending inventory = Material cost + Variable conversion cost + Fixed manufacturing cost.
= $20,000+ $10,000 + $25,000.
= $55,000.
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