For 10 Pts: A business produced 20,000 units in its first month of operation and

Question

For 10 Pts: A business produced 20,000 units in its first month of operation and sold 18,000 units. Assuming the following costs, what would be the dollar amount of inventory using the absorption costing system? Production Costs Direct Materials Direct Labor Variable Factory Overhead Fixed Factory Overhead $180,000 240,000 280,000 100,000 Operating Expenses: Variable Operating Expenses Fixed Operating Expenses $130,000 50,000 A. $80,000 B. $100,000 C. $70,000 D. $150,000 For 1n Prer businecs produced 20 000 unite in ite first

Explanation / Answer

A. $ 80,000

Working:

Step-1:Calculation of total cost of production Direct Materials $       1,80,000 Direct Labor           2,40,000 Variable Factory Overhead           2,80,000 Fixed Factory Overhead           1,00,000 Total Production Costs           8,00,000 Step-2:Calculation of each unit cost of production Total Production costs           8,00,000 ÷ Total Units produced               20,000 Cost per unit produced $             40.00 Step-3:Calculate cost of ending Inventory Cost of ending inventory = Units in ending Inventory x Cost per unit = $         2,000 x $    40.00 = $       80,000 Thus, Ending Inventory cost undrr absorbtion costing is $ 80,000

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