Question

The Southern Corporation manufactures a single product and has the following cost structure: Variable costs per unit: Production $ 35 Selling and administrative $ 13 Fixed costs per year: Production $ 96,320 Selling and administrative $ 84,760 Last year, 6,020 units were produced and 5,920 units were sold. There was no beginning inventory. The carrying value on the balance sheet of the ending inventory of finished goods under variable costing would be: a. the same as absorption costing. b. $5,920 greater than under absorption costing. c. $5,920 less than under absorption costing. d. $1,600 less than under absorption costing.

Answer 1

Answer:

d. $1,600 less than under absorption costing.

Explanation:

The computation of the carrying value on the balance sheet of the ending inventory of finished goods under variable costing is shown below:

But before that first we have to determine the unit cost which is

Unit fixed manufacturing overhead

= $96,320 ÷  6,020

= $16

Now the difference is

= Unit fixed manufacturing overhead × Change in inventory in units

= $16 × (6,020 units - 5,920 units)

= $1,600 less than under absorption costing.