Question

Sierra Company incurs the following costs to produce and sell a single product.Variable costs per unit:Direct materials $ 11Direct labor $ 6Variable manufacturing overhead $ 3Variable selling and administrative expenses $ 6Fixed costs per year:Fixed manufacturing overhead $ 58,500Fixed selling and administrative expenses $ 300,000During the last year, 29,250 units were produced and 25,500 units were sold. The Finished Goods inventory account at the end of the year shows a balance of $75,000 for the 3,750 unsold units.Required:1. Determine whether the company is using absorption costing or variable costing to cost units in the Finished Goods inventory account.a. Calculate the ending balance in the Finished Goods inventory account under variable costing and absorption costing..

Answer 1

Answer:

Instructions are listed below

Explanation:

Giving the following information:

Variable costs per unit:

Direct materials $ 11

Direct labor $ 6

Variable manufacturing overhead $ 3

Variable selling and administrative expenses $ 6

Fixed costs per year:

Fixed manufacturing overhead $ 58,500

Fixed selling and administrative expenses $ 300,000

During the last year, 29,250 units were produced and 25,500 units were sold.

The Finished Goods inventory account at the end of the year shows a balance of $75,000 for the 3,750 unsold units.

1) Variable costing;

Unitary cost:

Direct materials $ 11

Direct labor $ 6

Variable manufacturing overhead $ 3

Total unitary cost= $20

Cost of unsold units= 20*3750= $75,000

2) Under absorbing costing:

Unitary cost:

Direct materials $ 11

Direct labor $ 6

Variable manufacturing overhead $ 3

Fixed manufacturing overhead= 58500/29250= 2

Total unitary cost= $22

Cost of ending finished goods= 22*3750= $82,500