Question

The following information pertains to Mayberry Corporation:

Beginning inventory	6,000 units
Ending inventory	1,000 units
Direct labor per unit	$40
Direct materials per unit	20
Variable overhead per unit	10
Fixed overhead per unit	30
Variable selling and admin. costs per unit	6
Fixed selling and admin. costs per unit	14

A) What is the value of the ending inventory using the absorption costing method?

		a) $600,000
		b) $100,000
		c) $120,000
	d)	$70,000

B) What is the value of the ending inventory using the variable costing method?

		a) $120,000
		b) $70,000
		c) $100,000
		d) $420,000

Answer 1

Solution:
A.	Answer is b). $100,000
Working Notes:
	Under absorption costing , total cost per unit in which selling variable & fixed cost are not include as its inventory not of sold units valuation.
	The value of the ending inventory using the absorption costing method
	= Total cost per unit x units at the end of the period
	= (Direct materials per unit + Direct labor per unit + Variable overhead per unit + Fixed overhead per unit ) x 1,000
	=($20 + $40 + $10 + $30 ) x 1000
	= $100 x 1000
	=$100,000
B.	Answer is b). $70,000
Working Notes:
	Under variable costing , only variable cost per is included , total variable cost per unit in which selling variable are not include as its ending inventory valuation not of sold units valuation.
	The value of the ending inventory using the variable costing method
	= Total variable cost per unit x units at the end of the period
	= (Direct materials per unit + Direct labor per unit + Variable overhead per unit) x 1,000
	=($20 + $40 + $10 ) x 1000
	= $70 x 1000
	=$70,000
Please feel free to ask if anything about above solution in comment section of the question.