Question

Cahalane Corporation has provided the following data for its two most recent years of operation: Selling price per unit $ 91 Manufacturing costs: Variable manufacturing cost per unit produced:
Direct materials $ 12
Direct labor $ 5
Variable manufacturing overhead $ 5
Fixed manufacturing overhead per year $ 432,000
Selling and administrative expenses:
Variable selling and administrative expense per unit sold $ 4
Fixed selling and administrative expense per year $ 78,000

Year 1 Year 2
Units in beginning inventory 0 1,000
Units produced during the year 9,000 12,000
Units sold during the year 8,000 10,000
Units in ending inventory 1,000 3,000

Which of the following statements is true for Year 2?

A. The amount of fixed manufacturing overhead deferred in inventories is $60,000B. The amount of fixed manufacturing overhead released from inventories is $60,000C. The amount of fixed manufacturing overhead deferred in inventories is $592,000D. The amount of fixed manufacturing overhead released from inventories is $592,000

Answer 1

Answer:

A. The amount of fixed overhead deferred in inventories is $60,000

Explanation:

Unit product cost      

                                            Year 1      Year 2  

Direct materials                      $12         $12

Direct labor                              $5        $5  

Variable manufacturing

overhead                                     $5      $5  

Fixed overhead

                                                   $48      $36  

                           ($432,000 ÷ 9,000)   ($432,000 ÷ 12,000)

unit product cost                       $70      $58

Fixed overhead deferred (1,000 × $48)   $48,000  

Fixed overhead released                                             -$48000  

Fixed overhead deferred (3000 × $36)                        $108,000  

Net                                                             $48,000        $60,000

The amount of fixed overhead deferred in inventories is $60,000