Jax Incorporated reports the following data for its only product. The company had no beginning finished goods inventory and it uses absorption costing. Sales price$ 58.00per unitDirect materials$ 11.00per unitDirect labor$ 8.50per unitVariable overhead$ 13.00per unitFixed overhead$ 1,440,000per year 1. Compute gross profit assuming (a) 80,000 units are produced and 80,000 units are sold and (b) 120,000 units are produced and 80,000 units are sold. 2. By how much would the company’s gross profit increase or decrease from producing 40,000 more units than it sells?

Q: None

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.