Asked by Vaughn Lawrence on May 27, 2024
Verified
Of the 10,000 units produced,9,200 were sold,and 800 remain in inventory at year-end.Under absorption costing,the value of the inventory is:
A) $12,800.
B) $18,400.
C) $28,000.
D) $22,400.
E) $13,600.
Absorption Costing
A financial accounting technique that integrates all costs incurred from manufacturing, including direct materials, direct labor, along with both fixed and variable overhead costs, into the total cost of a product.
Direct Materials
Raw materials that can be directly linked to the production of finished goods in manufacturing.
Fixed Overhead
Fixed Overhead refers to the consistent, non-variable expenses incurred by a business, regardless of its level of production or sales activities.
- Scrutinize the calculation of income through absorption and variable costing, being aware of its repercussions on financial accounting and the process of making critical decisions.
Verified Answer
Direct materials per unit + Direct labor per unit + Variable overhead per unit + (Total Fixed overhead/Number of units produced)
Total cost per unit = $10 + $6 + ($70,000/10,000) + ($120,000/10,000)
Total cost per unit = $23
Since 800 units remain in inventory, the value of the inventory is 800 units x $23 per unit = $18,400.
Therefore, the answer is C.
Learning Objectives
- Scrutinize the calculation of income through absorption and variable costing, being aware of its repercussions on financial accounting and the process of making critical decisions.
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