Question

Columbia Corporation produces a single product. The company's variable costing income statement for November appears below: Columbia Corporation Income Statement For the Month ended November 30 Sales ($22 per unit) $ 902,000 Variable expenses: Variable cost of goods sold 574,000 Variable selling expense 123,000 Total variable expenses 697,000 Contribution margin 205,000 Fixed expenses: Manufacturing 106,680 Selling and administrative 71,120 Total fixed expenses 177,800 Net operating income $ 27,200 During November, 35,560 units were manufactured and 8,770 units were in beginning inventory. Variable production costs have remained constant on a per unit basis over the past several months. The value of the company's inventory on November 30 under absorption costing would be

Answer 1

Answer:

Value of closing Inventory under absorption costing = $56,610

Explanation:

Provided sales for the month = $902,000 a the rate of $22 per unit.

That means sales in units = $902,000/ $22 = 41,000 units.

Provided opening stock of finished goods = 8,770 units

Production for the month of November = 35,560 units

Closing inventory = Opening + Manufactured - Sales

                              = 8,770 + 35,560 - 41,000 = 3,330

Under absorption costing only manufacturing overheads are added to the cost of goods, operating expenses like selling & administrative do not form part of that.

Variable cost of goods sold do not include operating expenses, as variable selling expenses are provided separately.

Therefore cost of goods sold per unit = $574,000/41,000 = $14 per unit.

Variable selling expenses will not form part of value of closing inventory under absorption costing.

Fixed manufacturing expenses will be considered fully with the production quantity of 35,560 units as no production capacity has been provided.

Manufacturing fixed cost per unit = $106,680/35,560 = $3 per unit

Value of closing Inventory = Cost of goods sold per unit + Fixed cost per unit allocated

= ($14 X 3,330) + ($3 X 3,330) = $56,610