Question

Lorillard Corporation has the following information for April, May, and June 2018: April May June Units produced 12,500 12,500 12,500 Units sold 8,750 10,625 13,125 Production costs per unit (based on 12,500 units) are as follows: Direct materials $ 15 Direct labor 10 Variable factory overhead 7.50 Fixed factory overhead 5 Variable selling and admin. expenses 12.50 Fixed selling and admin. expenses 5 There were no beginning inventories for April 2018, and all units were sold for $50. Costs are stable over the three months. What is the April ending inventory for Lorillard Corporation using the variable costing method

Answer 1

Answer:

April ending inventory cost= $121,875

Explanation:

As per the data given in the question,

Unit production cost       Absorption cost       Variable cost

Direct material                     $15                              $15

Direct labor                            10                                10  

Variable factory overhead    7.5                              7.5  

Fixed factory overhead          5

Total cost                               $37.5                       $32.5  

Finished goods inventory = 12,500 - 8,750 = 3,750

Finished goods inventory cost using absorption costing = 3,750 × $37.50

= $140,625

Finished goods inventory cost using variable costing  = 3,750 × $32.50

= $121,875