Based on the included question and answer files - please help me understand how the ending inventory amounts are calculated for each year. I see ((20000*52.41) (5000*53.87) (10000*53.28)). I can see how the 20000, 5000, and 10000 quantities are calculated. I am not sure how the dollar amounts (52.41, 53.87, and 53.28) are calculated. Can you help me understand? ### Required Information**[The following information applies to the questions displayed below.]**O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:#### Variable Costs per Unit:- **Manufacturing:** - Direct materials: $25 - Direct labor: $15 - Variable manufacturing overhead: $6- **Variable selling and administrative:** $2#### Fixed Costs per Year:- Fixed manufacturing overhead: $590,000- Fixed selling and administrative expenses: $150,000---During its first year of operations, O'Brien produced 92,000 units and sold 72,000 units. During its second year of operations, it produced 75,000 units and sold 90,000 units. In its third year, O'Brien produced 81,000 units and sold 76,000 units. The selling price of the company’s product is $71 per unit.### Tasks:3. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first): a. Compute the unit product cost for Year 1, Year 2, and Year 3. b. Prepare an income statement for Year 1, Year 2, and Year 3. **Explanation****FIFO Method** Under the FIFO Method, a company uses inventory that was purchased first in production. Once the entire inventory from the first purchase is utilized, the inventory purchased afterward is used in production.**Solution**1. **Income Statement (Absorption Costing)** *O'Brien Company* | Income Statement (Absorption Costing) | Year 1 | Year 2 | Year 3 | |---------------------------------------|--------------|--------------|--------------| | Sales Revenue | $5,112,000 | $6,390,000 | $5,396,000 | | Cost of Goods Sold: | | | | | Beginning Balance | $- | $1,048,200 | $269,350 | | Direct Materials | $2,300,000 | $1,875,000 | $2,025,000 | | Direct Labor | $1,380,000 | $1,125,000 | $1,215,000 | | Variable Manufacturing Overheads | $552,000 | $450,000 | $486,000 | | Fixed Manufacturing Overheads | $590,000 | $590,000 | $590,000 | | | $4,822,000 | $4,040,000 | $4,316,000 | | Less: Ending Inventory | $1,048,200 | $269,350 | $532,800 | | | ($20,000 X $52.41) | (5,000 X $53.87) | (10,000 X $53.28) | | | $3,773,800 | $4,818,850 | $4,052,550 | | Gross Profit | $1,338,200 | $1,571,150 | $1,343,450 | | Operating Expenses: | | | | | Variable Selling and Administrative Expenses | $144,000 | $180,000 | $152,000 | | Fixed Selling and Administrative Expenses | $150,000 | $150,000 | $150,000 | |

Lets understand the basics. While preparing a income statement, we are required to calculate unit product cost in order to calculate the ending inventory of the period. It is calculated by dividing the total manufacturing cost by the number of unit produced during a period. Unit product cost = Total manufacturing costs/Unit produced Total manufacturing cost is a cost to manufacture goods during the period. It includes costs like, direct material, direct labor, Manufacturing overhead etc. So here in this case, Calculation of unit product cost:- Particulars Year 1($) Year 2($) Year 3($) Direct materials (A) 2,300,000 1,875,000 2,025,000 Direct labor (B) 1,380,000 1,125,000 1,215,000 Variable manufacturing overheads (C) 552,000 450,000 486,000 Fixed manufacturing overheads (D) 590,000 590,000 590,000 Total manufacturing costs (E) = (A+B+C+D) 4,822,000 4,040,000 4,316,000 Unit produced (F) 92,000 75,000 81,000 Cost per unit (G) = (E/F) 52.41 53.87 53.28 Formulas for above calculations are:- Particulars Year 1 Year 2 Year 3 Direct materials =92,000 * $25 =75,000* $25 =81,000 * $25 Direct labor =92,000 * $15 =75,000* $15 =81,000 * $15 Variable manufacturing overheads =92,000 * $6 =75,000* $6 =81,000 * $6 Fixed manufacturing overheads Given in the question Given in the question Given in the question Now the ending inventory:- Ending inventory = Opening inventory + Unit produced - Sales Year 1 = 0 + 92,000 - 72,000 = 20,000 Units Year 2 = 20,000 + 75,000 - 90,000 = 5,000 Units Year 3 = 5,000 + 81,000 - 76,000 = 10,000 Units Ending inventory valuation:_ Year 1 = 20,000 Units * $52.41 = $1,048,200 Year 2 = 5,000 Units * $53.87 = $269,350 Year 3 =10,000 Units * $53.28 = $532,800