Question

During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per unit, Direct labor, $3 per unit, Variable overhead, $4 per unit, and Fixed overhead, $189,000. The company produced 21,000 units, and sold 15,500 units, leaving 5,500 units in inventory at year-end. What is the value of ending inventory under absorption costing?

Answer 1

Answer:

$115,000

Explanation:

Given that

Cost of direct material = 5 per unit

Direct labour = 3 per unit

Variable = 4 per unit

Fixed overhead = 189000

Unit produced = 21000

Therefore,

Value of ending inventory under absorption costing = 5 + 3 + 4 + (189000/21000)

= 5 + 3 + 4 + 9

= 21 per unit × 5500 unit

= $115,000