Inventory Valuation under Absorption Costing and Variable Costing At the end of

Question

Inventory Valuation under Absorption Costing and Variable Costing At the end of the first year of operations, 6,400 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows: Direct materials $75 Direct labor 35 Fixed factory overhead 15 Variable factory overhead 12 Determine the cost of the finished goods inventory reported on the balance sheet under (a) the absorption costing concept and (b) the variable costing concept. Absorption costing $ Variable costing $ Feedback Recall that the fixed factory overhead cost is included in absorption costing, while only direct materials and labor and variable factory overhead is included in variable costing.

Explanation / Answer

a Cost of the finished goods inventory = 6400*(75+35+15+12)= $876800 b Cost of the finished goods inventory = 6400*(75+35+12)= $780800

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