Kellman Corporation Kellman Corporation produces a single product that sells for $7.00 per unit. Standard capacity is 100,000 units per year; 100,000 units were produced and 80,000 units were sold during the year. Manufacturing costs and selling and administrative expenses are presented below.
There were no variances from the standard variable costs. Any under- or overapplied overhead is written off directly at year-end as an adjustment to cost of goods sold.
Kellman Corporation had no inventory at the beginning of the year.
Refer to Kellman Corporation. In presenting inventory on the balance sheet at December 31, the unit cost under absorption costing is
A) $2.50.
B) $3.00.
C) $3.50.
D) $4.50.

Question

Kellman Corporation Kellman Corporation produces a single product that sells for $7.00 per unit. Standard capacity is 100,000 units per year; 100,000 units were produced and 80,000 units were sold during the year. Manufacturing costs and selling and administrative expenses are presented below.
There were no variances from the standard variable costs. Any under- or overapplied overhead is written off directly at year-end as an adjustment to cost of goods sold.
 Kellman Corporation had no inventory at the beginning of the year.
Refer to Kellman Corporation. In presenting inventory on the balance sheet at December 31, the unit cost under absorption costing is
A) $2.50. 
B) $3.00. 
C) $3.50. 
D) $4.50.

Quizplus · Accepted Answer

Under absorption costing, inventory includes both variable and fixed manufacturing costs. The total manufacturing cost per unit is $4.50 ($2 for direct materials, $1.50 for direct labor, and $1 for overhead). Therefore, the unit cost under absorption costing is $4.50.

Kellman Corporation Kellman Corporation Produces a Single Product That Sells