The XYZ Corporation is manufacturing widgets; they estimate that they will sell

Question

The XYZ Corporation is manufacturing widgets; they estimate that they will sell 25,000 widgets in the next five months. XYZ Corporation will manufacture 5,000 widgets each month; however, the sales for each month will be as follows: January 3,250; February 4,100; March 6,200; April 5,600; and May, 5850. If XYZ Corporation has no beginning inventory to start in January, and the fixed cost per unit is $1.24 and the variable cost per unit is $2.35, they sell each widget at $7.50.

A.Calculate the cost of inventory for each month.

B. If in the month of March the variable cost increase from $2.35 to $2.94 and the XYZ Corporation uses the FIFO method, calculate the new cost of inventory for each month.

Explanation / Answer

Question - A

Ending Inventory shall be multiplied with 3.59 ( variable cost + fixed cost)

Question - B

FIFO method, means ending inventory of march shall be sold out in april. Thus we have change in cost of inventory only for March. i.e 1450 units * (1.24+2.94) = 6061

January February March April May Beginning Inventory 0 1750 2650 1450 850 Production 5000 5000 5000 5000 5000 Available for sale 5000 6750 7650 6450 5850 (-) Sales 3250 4100 6200 5600 5850 Ending Inventory 1750 2650 1450 850 0 Cost of Inventory 6282.5 9513.5 5205.5 3051.5 0

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