Baker Company produced 30,000 units and sold 28,000 units in 2011. Beginning inv

ID: 2477254 • Letter: B

Question

Baker Company produced 30,000 units and sold 28,000 units in 2011. Beginning inventory was zero. During the period, the following costs were incurred:

Indirect labor 60,000

Indirect Materials 30,000

Other variable overhead 90,000

Fixed manufacotring overhead 180,000

Fixed administrative overhead 150,000

Fixed selling expenses 120,000

Variable selling expenses, per unit 80

Direct Materials per unit 20

Required: Compute the dollor amount of ending inventory using:

A. Absorbtion costing

B. Variable costing

Explanation / Answer

Dollar amount of ending inventory

Ending inventory unit = 30,000 – 28,000 = 2,000 units

For absorption costing the unit cost is = variable and fixed manufacturing cost

Unit cost of product

Indirect labor

$60,000

Indirect materials

30,000

Other variable overhead

90,000

Fixed manufacturing overhead

180,000

Total

$360,000

Cost per unit = 360,000/30,000

=$12

Total cost per unit = $12 +Direct materials $20 per unit

=$32 per unit

Hence ending inventory = 2000*32

=$64,000

Under variable costing only variable cost is used for calculating unit cost per unit

=( 60,000 indirect labor + indirect materials 30,000 + Other variable overhead

90,000)/30,000

= $6 + $20 direct material cost per unit

= $26

Ending inventory = $26*2000

=$52,000