The accounting records for Poole Manufacturing Company included the following cost information relating to its first year of operations: $\begin{array}{lrr}
\text { Direct materials} &\$60,000\
\text { Direct labor } &\$80,000\
\text { Fixed manufacturing overhead} &\$100,000\
\text {Variable manufacturing overhead } &\$20,000\
\end{array}$

Assume the company produced 10,000 units of inventory and sold 6,000 of these units for $192,000.What amount of finished goods will be reported on the balance sheet at the end of the year under absorption costing?
A) $104,000
B) $260,000
C) $96,000
D) $64,000

Question

The accounting records for Poole Manufacturing Company included the following cost information relating to its first year of operations: $\begin{array}{lrr}
  \text {  Direct materials} &\$60,000\
 \text { Direct labor } &\$80,000\
 \text {  Fixed manufacturing overhead} &\$100,000\
 \text {Variable manufacturing overhead  } &\$20,000\
\end{array}$

Assume the company produced 10,000 units of inventory and sold 6,000 of these units for $192,000.What amount of finished goods will be reported on the balance sheet at the end of the year under absorption costing?
A) $104,000
B) $260,000
C) $96,000
D) $64,000

Quizplus · Accepted Answer

Under absorption costing, all manufacturing costs (direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead) are included in the cost of the product. The total manufacturing cost is $260,000 ($60,000 + $80,000 + $100,000 + $20,000). The cost per unit is $260,000 / 10,000 units = $26 per unit. Since 4,000 units (10,000 produced - 6,000 sold) are unsold, the finished goods inventory is 4,000 units * $26 per unit = $104,000.

The Accounting Records for Poole Manufacturing Company Included the Following