Question

Inventory valuation under absorption costing and variable costing At the end of the first year of operations, 23,600 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows: Direct materials $36 Direct labor 26 Fixed factory overhead 20 Variable factory overhead 8 This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below. Open spreadsheet 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. a. Cost of the finished goods inventory under the absorption costing: $ b. Cost of the finished goods inventory under the variable costing: $

Answer 1

a. $2,124,000

b. $1,652,000

Step-by-step explanation:

Absorption costing

Product Cost = All Manufacturing Costs

Therefore,

Product Cost = $36 + $ 26 + $ 8 + $ 20

= $90

Thus, Cost of the finished goods inventory = 23,600 units × $90

= $2,124,000

Variable Costing

Product Cost = Variable Manufacturing Costs

Therefore,

Product Cost = $36 + $ 26 + $ 8

= $70

Thus, Cost of the finished goods inventory = 23,600 units × $70

= $1,652,000