1 answer

A business operated at 100% of capacity during its first month and incurred the following costs:...

Question:

A business operated at 100% of capacity during its first month and incurred the following costs:

Production costs (10,000 units):
Direct materials $ 80,000
Direct labor 120,000
Variable factory overhead 140,000
Fixed factory overhead 40,000 $380,000
Operating expenses:
Variable operating expenses $ 65,000
Fixed operating expenses 25,000 90,000

If 600 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the absorption costing balance sheet?

a.$28,200

b.$22,800

c.$24,300

d.$34,000


Answers

Answer : a. $22800

Calculated as

Note : Operating costs are period costs so are not considered for valuation of material at the end

Total product cost =

Direct materials $ 80,000
Direct labor 120,000
Variable factory overhead 140,000
Fixed factory overhead 40,000 $380,000

Total product cost of 10000 units = $380000

Cost of 600 units ending units will be = $380000 x 600/10000 = $22800

So Answer is $22800

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