The Southern Corporation manufactures a single product and has the following cos

Question

The Southern Corporation manufactures a single product and has the following cost structure:

Last year, 6,300 units were produced and 6,200 units were sold. There was no beginning inventory.

The carrying value on the balance sheet of the ending inventory of finished goods under variable costing would be:

Multiple Choice

a. $6,200 less than under absorption costing.

b. the same as absorption costing.

c. $6,200 greater than under absorption costing.

d. $2,700 less than under absorption costing.

Variable costs per unit: Production $ 34 Selling and administrative $ 14 Fixed costs per year: Production $ 170,100 Selling and administrative $ 139,480

Explanation / Answer

Ending inventory under variable costing :

Ending inventory value = (34*100) = 3400

Ending invnetory value under absorption costing :

Ending inventory value = (27+34) *100 = 6100

so carrying value on the balance sheet of the ending inventory of finished goods under variable costing (6100-3400) = 2700 less than absorption costing

so answer is d) $2,700 less than under absorption costing.

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