Krepps Corporation produces a single product. Last year, Krepps manufactured 33,
ID: 2523580 • Letter: K
Question
Krepps Corporation produces a single product. Last year, Krepps manufactured 33,110 units and sold 27,600 units. Production costs for the year were as follows: Direct materials $ 248,325 Direct labor $ 175,483 Variable manufacturing overhead $ 294,679 Fixed manufacturing overhead $ 463,540 Sales totaled $1,242,000 for the year, variable selling and administrative expenses totaled $140,760, and fixed selling and administrative expenses totaled $221,837. There was no beginning inventory. Assume that direct labor is a variable cost. Under absorption costing, the ending inventory for the year would be valued at:
Explanation / Answer
Closing inventory under absorption costing:
Particulars
Amount ($)
Direct materials
248325
Direct labour
175483
Variable manufacturing overhead
294679
Fixed manufacturing overhead
463540
Total cost of production
1182027
Number of units
33110
Less: Units sold
27600
Closing inventory in units
5510
Closing stock value (1182027 x 5510 / 33110)
196707
Note: It has been assumed that the fixed manufacturing overhead is for exactly 33110 units and accordingly, the amount has been apportioned between the unit of production to determine the cost of production and the closing inventory.
Thus, the closing inventory $196,707.
Particulars
Amount ($)
Direct materials
248325
Direct labour
175483
Variable manufacturing overhead
294679
Fixed manufacturing overhead
463540
Total cost of production
1182027
Number of units
33110
Less: Units sold
27600
Closing inventory in units
5510
Closing stock value (1182027 x 5510 / 33110)
196707
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