Question

A manufacturer reports the following costs to produce 10,000 units in its first year of operations: Direct materials, $10 per unit, Direct labor, $6 per unit, Variable overhead, $70,000, and Fixed overhead, $120,000. Of the 10,000 units produced, 9,200 were sold, and 800 remain in inventory at year-end. Under absorption costing, the value of the inventory is:

Answer 1

Answer:

$28,000

Explanation:

The cost per unit, under absorption costing is given by the total producing cost divided by the number of units produced.

Cost = Units x (Direct materials + Direct labor) + Variable and Fixed overhead

$Cost = 10,000*(\ 6+\ 10) +\ 120,000+\ 70,000\\Cost = \ 350,000$

The cost per unit is:

$C_u=\frac{\ 350,000}{10,000}\\C_u = \ 35$

The value of inventory is given by the remaining units in inventory multiplied by the cost per unit

$I=800*\ 35\\I=\ 28,000$

The value of inventory, under absorption costing, is $28,000.