Question

In: Accounting

Variable and Absorption Costing Use the following information to answer the following 2 multiple choice questions:...

Variable and Absorption Costing


Use the following information to answer the following 2 multiple choice
questions:
Information taken from the accounting records of Holly Manufacturing for 2018:

Direct materials used $340,000
Direct labour $70,000
Variable manufacturing
overhead
$60,000
Fixed manufacturing
overhead
$130,000
Variable selling and
administrative costs
$40,000
Fixed selling and
administrative costs
$20,000
Units produced during
the year
40,000
Units in inventory at
the end of the year
6,000


There was no opening inventory.

Please do not give the answer only, please provide the process and calculation.


1. Based on the information (above) regarding Holly Manufacturing, calculate the
value of inventory at the end of the year, assuming absorption costing is used.
a) $90,000
b) $96,000
c) $72,000
d) $70,500


2. Based on the information (above) regarding Holly Manufacturing, calculate the
value of inventory at the end of the year, assuming variable costing is used.
a) $90,000
b) $96,000
c) $76,500
d) $70,500  

Solutions

Expert Solution

Absorption Costing Variable Costing
Direct Materials                         340,000          340,000
Direct Labour                           70,000            70,000
Variable manufacturing overhead                           60,000            60,000
Fixed Manufacturing overhead                         130,000                     -  
Total Cost                         600,000          470,000
Units produced                           40,000            40,000
Cost per unit                              15.00              11.75
(Total Cost/ No of units)
Units in inventory                              6,000              6,000
Inventory cost                           90,000            70,500
(Units in Inventory x Cost per unit)

Under absorption cost fixed manufaturing overhead is included while calculating cost per unit of the product. Under variable costing only variable manufacturing expenses are included while calculting cost per unit of the product.

Selling and administrative expenses do not form a part of the valuation of inventory.


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