**Inventory Valuation under Absorption Costing and Variable Costing**At the end of the first year of operations, 6,800 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows:- Direct materials: $39.40- Direct labor: $20.50- Fixed factory overhead: $5.60- Variable factory overhead: $4.90Determine the cost of the finished goods inventory reported on the balance sheet under:(a) the absorption costing concept(b) the variable costing concept.**Absorption costing**: $ [input box]**Variable costing**: $ [input box]

Answered: Inventory Valuation under Absorption…

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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**Inventory Valuation under Absorption Costing and Variable Costing**

At the end of the first year of operations, 6,800 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows:

- Direct materials: $39.40
- Direct labor: $20.50
- Fixed factory overhead: $5.60
- Variable factory overhead: $4.90

Determine the cost of the finished goods inventory reported on the balance sheet under:
(a) the absorption costing concept
(b) the variable costing concept.

**Absorption costing**: $ [input box]

**Variable costing**: $ [input box]

Expert Solution

Explanation -

Finished Goods Inventory -

Finished Goods Inventory is the Inventory left unsold and ready to sold condition. it is the portion of the inventory that is ready to be sold but remain unsold.

Absorption costing takes into consideration - Direct Material, Direct Labor and Manufacturing cost while calculating cost of goods sold.

Variable costing considers - Direct Material, Direct Labor and Variable Manufacturing Cost.

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