Inventory Valuation under Absorption Costing and Variable Costing At the end of the first year of operations, 4,900 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows: Direct materials Direct labor Fixed factory overhead Variable factory overhead $35.10 20.90 6.70 5.90 Determine the cost of the finished goods inventory reported on the balance sheet under (a) the absorption costing concept and (b) the variable costing concept. Absorption costing Variable costing
Inventory Valuation under Absorption Costing and Variable Costing At the end of the first year of operations, 4,900 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows: Direct materials Direct labor Fixed factory overhead Variable factory overhead $35.10 20.90 6.70 5.90 Determine the cost of the finished goods inventory reported on the balance sheet under (a) the absorption costing concept and (b) the variable costing concept. Absorption costing Variable costing
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Inventory Valuation under Absorption Costing and Variable
Costing
At the end of the first year of operations, 4,900 units
remained in the finished goods inventory. The unit
manufacturing costs during the year were as follows:
Direct materials
Direct labor
Fixed factory overhead
Variable factory overhead
$35.10
20.90
6.70
5.90
Determine the cost of the finished goods inventory reported
on the balance sheet under (a) the absorption costing
concept and (b) the variable costing concept.
Absorption costing
Variable costing
Expert Solution
Step 1
Under the "Absorption costing" method, Fixed factory overhead is also included in the product cost. Therefore, ending inventory includes the cost of fixed factory overhead.
Under the "Variable costing" method, Fixed factory overhead is not included in the product cost. Therefore, ending inventory does not include the cost of fixed factory overhead.
The only difference in Absorption and Variable costing occurs due to the Fixed factory overhead.
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