Frank fort Car Tunes produces car radios. Actual fixed manufacturing overhead is

Question

Frank fort Car Tunes produces car radios. Actual fixed manufacturing overhead is the same as the budgcted amount, $330,000. Production in September increased by 10% over the previous month's production. August's production was 5,000 radios. The production level is the same as the budgeted denominator level. At the end of September, 1,000 radios remained in stock. In August, all of the radios were sold by the end of t month and there was no remaining work in process inventory. What is the amount of fixed manufacturing costs that will be included in the September cost of goods sold amount if absorption costing is used? (a) $264,000. (b) $270,000. (c) $330,000. (d) 0 15.

Explanation / Answer

Answer is B. $ 270,000

Explanation is as follows:

No Finished and WIP inventory of Aug.

Total Porduction of Sep month (5000+10%) = 5500 units

Closing Finished Goods inventory                   1000 units

Units Sold                                                    4500 units

Total Fixed manufacturing overheads    $ 330,000 for 5500 units (i.e. $60 per unit)

Therefore, fixed overheads included in Cost of goods sold under Absorption costing = 4500 units@60 = $ 270,000

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