Question

Bernie, Ltd. manufactures a single product. During the month of November, 4,000 units were sold for $490, while 4,800 units were produced. Their November variable costing income statement showed the following expenses:

• Variable Cost of Goods Sold: $588,000
• Variable Selling and Administrative: $156,800
• Fixed Manufacturing: $705,600
• Fixed Selling and Administrative: $176,400

If November 1 inventory was 1,600 units, what is the value of the November 30 finished goods inventory under absorption costing?

Answer 1

Part 1)

We know that :

opening inventory+produced-Sold=Closing inventory

Thus, 1600+4800-4000=2400 Units

We have 2400 units of closing inventory

Part 2)

As per absorbtion Costing cost of goods=Direct material (DM)+Direct labor (DL)+Variable manufacturing overhead (VMOH)+Fixed manufacturing overhead (FMOH)

ans we know that:Direct material (DM)+Direct labor (DL)+Variable manufacturing overhead (VMOH)=Variable cost of goods

we have

Variable Cost of Goods Sold: $588,000

Total no. of units sold=4000 thus per unit Variable Cost of Goods Sold: $588,000/4000=$147 per unit

Variable cost of goods manufactured=4800*147=$7,05,600

Total cost of goods manufactured=Variable cost of goods manufactures+Fixed cost of goods manufactured

=705600+705600

=$1,411,200

Per unit total cost of goods manufactured=1411200/4800=$294 per unit

Value of closing stock=294*2400=$705,600

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