In: Accounting
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
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.