Question

Inventory Valuation under Absorption Costing

Answer 1

Answer:

1. There are 2,600 units in ending inventory.

2. Costs per unit under absorption costing $ 123

3.Value of ending inventory  $  319,800

Explanation:

Calculation of Ending inventory units.

Ending Inventory Units : Opening Units + Units produced - units sold

300 + 15,000 - 12700 = 2,600 units

Calculation of per unit cost under absorption costing

Under absorption costing, direct manufacturing costs as well as indirect factory overheads are considered.

Per  units costs

Direct Materials                  $ 20

Direct Labour                     $ 60

Variable overhead             $ 13

Fixed Overhead                $ 30

Total costs per unit          $ 123 under absorption costing

Calculation of ending inventory under absorption costing

The ending inventory calculated earlier of 2.600 units is multiplied by the per unit costs of $ 123 per unit to get the value of the ending inventory

$123 * 2600 units  = $ 319,800