Question

nventory Valuation under Absorption Costing and Variable Costing At the end of the first year of operations, 21,500 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows: Direct materials $30 Direct labor 18 Fixed factory overhead 22 Variable factory overhead 14 Determine the cost of the finished goods inventory reported on the balance sheet under (a) the absorption costing concept and (b) the variable costing concept. Absorption costing $fill in the blank 1 Variable costing $fill in the blank 2

Answer 1

Answer:

Results are below.

Explanation:

The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.

The variable costing method incorporates all variable production costs (direct material, direct labor, and variable overhead).

First, we will calculate the unitary and ending inventory cost under variable costing:

Unitary production cost= 30 + 18 + 14= $62

Ending inventory= 21,500*62= $1,333,000

Now, under the absorption costing:

Unitary production cost= 62 + 22= $84

Ending inventory= 21,500*84= $1,806,000