Question

Inventory Valuation under Absorption and Variable Costing

At the end of the first year of operations, 5,100 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows:

Direct materials	$38.30
Direct labor	14.00
Fixed factory overhead	5.70
Variable factory overhead	5.00

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	$
Variable costing	$

Answer 1

Answer

Unit (Variable Costing)
Direct Material	38.30
Direct Labor	14.00
Variable Manufacturing Overhead	5.00
Per unit Cost	57.30
While Calculating per unit cost under Variable Costing, we will not Consider Fixed Manufacturing Cost and it will not be considered part of per unit cost. Closing Stock = No. of Units * Per Unit Cost = 5,100 Units * $57.30 per unit Closing Stock = $292,230
Unit Cost(Absorption Costing)
Direct Material	38.30
Direct Labor	14.00
Variable Manufacturing Overhead	5.00
Fixed Manufacturing per unit	5.70
Per unit Cost	63.00

While Calculating per unit cost under Variable Costing, we will Consider Fixed Manufacturing Cost and it will be considered part of per unit cost.

Closing Stock = No. of Units * Per Unit Cost

= 5,100 Units * $63.00 per unit

Closing Stock = $321,300

Dear Student, if u have any doubt, plz feel free to reach me.