Question

Inventory Valuation under Absorption Costing and Variable Costing

At the end of the first year of operations, 4,100 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows:

Direct materials	$34.40
Direct labor	18.10
Fixed factory overhead	5.90
Variable factory overhead	5.20

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

Absorption Costing	$260,760
Variable Costing	$236,570

--Working

	Absorption Costing	Variable Costing
Direct Materials	$34.40	$34.40
Direct Labor	$18.10	$18.10
Variable factory overhead	$5.20	$5.20
Fixed factory Overhead	$5.90
Total unit product cost (A)	$63.60	$57.70
Units in ending inventory (B)	4,100	4,100
Cost of finished goods inventory (C = A/B)	$260,760	$236,570