Question

Neef Corporation has provided the following data for its two most recent years of operation: Selling price per unit Manufacturing costs: 84 Variable manufacturing cost per unit produced: Direct materials 12 Direct labor Variable manufacturing overhead Fixed manufacturing overhead per year $432,000 Selling and administrative expenses: Variable selling and administrative expense per unit sold 5 Fixed selling and administrative expense per year 61,000 Year 1 Year 2 3,000 Units produced during the year 12, 000 9,000 9,000 10,000 3,000 2,000 Units in beginning inventory Units sold during the year Units in ending inventory Which of the following statements is true for Year 2?
A. The amount of fixed manufacturing overhead released from inventories is $654,000
B. The amount of fixed manufacturing overhead deferred in inventories is $12,000
C. The amount of fixed manufacturing overhead released from inventories is $12,000
D. The amount of fixed manufacturing overhead deferred in inventories is $654,000

Answer 1

Answer:

C. The amount of fixed manufacturing overhead released from inventories is $12,000

Explanation:

Fixed manufacturing overhead in year 1 = $432,000

Production of units in Year 1 = 12,000 units

Thus, fixed manufacturing overhead per unit in year 1 = $432,000 / 12,000 units = $36 per unit

Inventory at the end of year 1 = 3,000 units

Fixed manufacturing overhead deferred in year 1 = 3000 units * $36 per unit = $108,000

Now, lets calculate for year 2:

Production units: 9000 units

Fixed manufacturing overhead per unit in year 2 : $432,000 / 9,000 units = $48 per unit

Fixed manufacturing overhead in closing inventory = 2000 units * 48 = $96,000

Fixed manufacturing overhead released from inventory = Fixed manufacturing overhead in beginning inventory - Fixed manufacturing overhead in ending inventory

Now, applying the formula (as stated above) for calculating fixed manufacturing overhead released from inventory in year 2:

Fixed manufacturing overhead (FMOH) released from inventory in year 2 = FMOH in year 1 - FMOH in year 2

= $108,000 - $96,000 =

= $12,000.