Austin Company The following information is available for Austin Company for its first year of operations:
Refer to Austin Company.If Austin Company were using variable costing,what would it show as the value of ending inventory?
A)$120,000
B)$64,500
C)$27,000
D)$24,000

Question

Austin Company The following information is available for Austin Company for its first year of operations:
 Refer to Austin Company.If Austin Company were using variable costing,what would it show as the value of ending inventory?
A)$120,000 
B)$64,500 
C)$27,000 
D)$24,000

Quizplus · Accepted Answer

Variable costing only includes variable manufacturing costs (direct materials, direct labor, and variable overhead) in the cost of goods sold. Fixed manufacturing costs are treated as period expenses and are not included in the cost of goods sold. Therefore, the value of ending inventory under variable costing will only include variable manufacturing costs. 
The variable manufacturing costs for the year are: 
Direct materials: $30,000 
Direct labor: $36,000 
Variable overhead: $15,000 
Total variable manufacturing costs: $81,000 
$108,000 (total manufacturing costs) - $81,000 (variable manufacturing costs) = $27,000 (ending inventory under variable costing). 
Therefore, the correct answer is C.

Austin Company the Following Information Is Available for Austin Company