Kern Corporation produces a single product. Selected information concerning the operations of the company follow: Assume that direct labor is a variable cost.Under absorption costing, the value of the ending finished goods inventory would be:
A) $7,200
B) $7,650
C) $8,000
D) $9,700

Question

Kern Corporation produces a single product. Selected information concerning the operations of the company follow:  Assume that direct labor is a variable cost.Under absorption costing, the value of the ending finished goods inventory would be:
A) $7,200 
B) $7,650 
C) $8,000 
D) $9,700

Quizplus · Accepted Answer

Under absorption costing, the ending finished goods inventory includes both variable and fixed manufacturing costs. Therefore, we need to calculate the total cost of the ending finished goods inventory by adding the variable and fixed manufacturing costs per unit and multiplying this by the number of units in the ending finished goods inventory.

Total cost per unit = variable manufacturing cost per unit + fixed manufacturing cost per unit 
Total cost per unit = $11 + ($6,000 ÷ 1,500 units) 
Total cost per unit = $15 per unit

Ending finished goods inventory = 650 units 
Total cost of ending finished goods inventory = 650 units x $15 per unit 
Total cost of ending finished goods inventory = $9,750

Therefore, the value of the ending finished goods inventory under absorption costing would be $9,700 (rounded to the nearest dollar).

Kern Corporation Produces a Single Product