Bella Ltd has operated for 2 years. During that time it produced 1,000 units in year 1 and 800 in year 2, while sales were 800 units in year 1 and 900 in year 2. Variable production costs were $8 per unit during both years. The company uses last-in, first-out (LIFO) for inventory costing. The absorption costing income statements for these 2 years were: Ending inventory for year 2 using variable costing would be
A) $2,200
B) $1,100
C) $1,175
D) $800

Question

Quizplus · Accepted Answer

Under variable costing, ending inventory is valued at variable production cost per unit. In year 2, 100 units remain in inventory (1,000 produced in year 1 + 800 produced in year 2 - 800 sold in year 1 - 900 sold in year 2). At $8 per unit, the ending inventory is $800.

Bella Ltd Has Operated for 2 Years