B3 Comparison of Variable Costing and Absorption Costing Consider the following

Question

B3 Comparison of Variable Costing and Absorption Costing

Consider the following information pertaining to a year’s operations of Youngstown Manufacturing:

Units sold 1,400

Units produced 1,600

Direct labor $4,200

Direct materials used 3,500

Fixed manufacturing overhead 2,200

Variable manufacturing overhead 300

Selling and administrative expenses (all fixed) 700

Beginning inventories 0

Contribution margin 5,600

Direct-material inventory, end 800

There are no work-in-process inventories.

1. What is the ending finished-goods inventory cost under absorption costing?

2. What is the ending finished-goods inventory cost under variable costing?

Explanation / Answer

1. What is the ending finished-goods inventory cost under absorption costing? Direct labor $4,200 Direct materials used 3,500 Fixed manufacturing overhead 2,200 Variable manufacturing overhead 300 Total Manufacturing cost 10,200 ====== Units produced 1,600 Cost per unit $6.375 Inventory cost of ending finished-goods $1275 2. What is the ending finished-goods inventory cost under variable costing? Direct labor $4,200 Direct materials used 3,500 Variable manufacturing overhead 300 Total Manufacturing cost $8,000 ===== Cost per unit $5.00 Inventory cost of ending finished-goods $1,000

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