Answered: Calculate this year's ending balance in…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1-a. Calculate this year's ending balance in Finished Goods inventory two ways—using variable costing and using absorption costing.

1-b. Does it appear that the company is using variable costing or absorption costing to assign costs to the 4,750 units in its Finished Goods inventory?

2. Assume that the company wishes to prepare this year's financial statements for its stockholders.

a. Is Finished Goods inventory of $104,500 the correct amount to include on the balance sheet for external reporting purposes?

b. What balance should be reported in the Finished Goods inventory account for external reporting purposes?

Sierra Company incurs the following costs to produce and sell its only product.
Variable costs per unit:
Direct materials
$
$
$
$
10
Direct labor
8
Variable manufacturing overhead
Variable selling and administrative expenses
Fixed costs per year:
4
Fixed manufacturing overhead
Fixed selling and administrative expenses
$
90,750
$ 285,000
During this year, 30,250 units were produced and 25,500 units were sold. The Finished Goods inventory account at the end of this
year shows a balance of $104,500 for the 4,750 unsold units.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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