Question

Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of $12. Costs for last year were as follows: Direct materials $25,000 Direct labor 35,000 Variable factory overhead 12,000 Fixed factory overhead 37,000 Variable selling expense 9,000 Fixed selling expense 7,500 Fixed administrative expense 15,500 Assuming that beginning inventory was zero, what is the value of ending inventory under variable costing? a.$3,300 b.$2,500 c.$3,720 d.$7,200 e.$5,000

Answer 1

Answer:

d.$7,200

Explanation:

For computing the ending inventory, first, we have to compute the per unit product cost which is shown below:

= (Direct materials cost + Direct labor cost + Variable factory overhead cost) ÷ Number of units produced

= ($25,000 + $35,000 + $12,000) ÷ 20,000 units

= $72,000 ÷ 20,000 units

= $3.6

Now the ending inventory equal to

= Ending inventory units ×  per unit product cost

= 2,000 units × $3.6

= $7,200

The ending inventory = Sales units - produced units

                                    = $20,000 - $18,000

                                    = $2,000