Question

During the most recent year, Boston Corp. had the following data:

Beginning inventory in units	-
Units produced	15,000
Units sold ($125 per unit)	12,000
Variable costs per unit:
Direct materials	$15
Direct labor	$20
Variable overhead	$10
Fixed costs:
Fixed overhead per unit produced	$20
Fixed selling and administrative	$ 200,000

Required:

A. How many units are in ending inventory?

B. Using absorption costing, calculate the per-unit product cost. What is the value of ending inventory?

C. Using variable costing, calculate the per-unit product cost. What is the value of ending inventory?

D. What is the income using variable costing? (not absorption costing).

Answer 1

PART-1) How many units are in ending inventory?

Solution:

Beginning inventory	0
Plus: Units produced	15000
Minus: Units sold	12000
Ending inventory	3000

PART-2) Using absorption costing, calculate the per-unit product cost. What is the value of ending inventory.

Solution:

Variable cost per unit
Direct materials	15
Direct labor	20
Variable overhead	10
Fixed cost:
Fixed overhead per unit	20
Fixed selling and administratve cost	17
Per unit product cost	81.67

Number of ending units	3,000
Cost per unit less selling and administartive cost	65
Cost of ending inventory	195,000

　

PART-3) Using variable costing, calculate the per-unit product cost. What is the value of ending inventory?

Solution:

Variable cost per unit
Direct materials	15
Direct labor	20
Variable overhead	10
Fixed cost:
Fixed overhead per unit	20
Fixed selling and administratve cost	17
Per unit product cost	82

Number of ending units	3,000
Cost per unit less fixed costs	45
Cost of ending inventory	135,000

　

PART-4) What is the income using variable costing? (not absorption costing)

Solution:

Sales		1,500,000
Less: variable costs
Direct materials	180,000
Direct labor	240,000
Variable overhead	120,000
Total variable costs		540,000
Contribution margin		960,000
Fixed costs
Fixed overhead	300,000
Fixed selling and adminstrative	200,000
Total fixed costs		500,000
Net income		460,000