Beach Corporation, which produces a single product, budgeted the following costs for its first year of operations. These costs are based on a budgeted volume of 30,000 towels produced and sold:
During the first year of operations, Beach Corporation actually produced 30,000 towels but only sold 24,000 towels. Actual costs did not fluctuate from the cost behavior patterns described above. The 24,000 towels were sold for $16 per towel. Assume that direct labor is a variable cost.
-What is the total cost that would be assigned to Beach Corporation's finished goods inventory at the end of the first year of operations under variable costing?
A) $43,200
B) $45,600
C) $55,200
D) $64,800

Question

Beach Corporation, which produces a single product, budgeted the following costs for its first year of operations. These costs are based on a budgeted volume of 30,000 towels produced and sold:
  During the first year of operations, Beach Corporation actually produced 30,000 towels but only sold 24,000 towels. Actual costs did not fluctuate from the cost behavior patterns described above. The 24,000 towels were sold for $16 per towel. Assume that direct labor is a variable cost.
-What is the total cost that would be assigned to Beach Corporation's finished goods inventory at the end of the first year of operations under variable costing?
A) $43,200 
B) $45,600 
C) $55,200 
D) $64,800

Quizplus · Accepted Answer

Unit product cost under variable costing:
 11ea7761_1821_25fa_81a5_aba3641038f8_TB2580_00 Units in ending inventory = Units in beginning inventory + Units produced - Units sold
= 0 + 30,000 towels - 24,000 towels = 6,000 towels
When beginning inventory is zero and there is only a single product, the value of ending inventory can be simply computed as follows:
Value of ending inventory = Units in ending inventory × Unit product cost
= 6,000 towels × $7.20 per towel = $43,200

Beach Corporation, Which Produces a Single Product, Budgeted the Following