Question

X, Inc., is a manufacturer that can produce 10,000 units per quarter at capacity. However, normal production ranges from 9,500 to 10,500 units. During the quarter, X has fixed overhead costs of $80,000 and produces only 8,000 units due to unexpected maintenance issues that forced the facility to close for a week. X had no beginning inventory and had no sales during the quarter. How much of the $80,000 in fixed overhead costs should X include in ending Inventory for the quarter

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

During the quarter, X has fixed overhead costs of $80,000 and produces only 8,000 units due to unexpected maintenance issues that forced the facility to close for a week. X had no beginning inventory and had no sales during the quarter.

The answer depends on whether X is using absorption or variable costing method.

Under absorption costing the fixed manufacturing costs are included in the cost of goods sold. Therefore, if there were no sales, all the fixed costs are located in inventory and "pass" to the following quarter.

Under variable costing all the fixed overhead are costs of the period.