Lone Star has computed the following unit costs for the year just ended: $$\begin{array} { l r }
\text { Direct material used } & \$ 12 \
\text { Direct labor } & 18 \
\text { Variable manufacturing overhead } & 25 \
\text { Fixed manufacturing overhead } & 29 \
\text { Variable selling and administrative cost } & 10 \
\text { Fixed selling and administrative cost } & 17
\end{array}$$ Under absorption costing, each unit of the company's inventory would be carried at:
A) $35.
B) $55.
C) $65.
D) $84.
E) None of the other answers are correct.

Question

Lone Star has computed the following unit costs for the year just ended: $$\begin{array} { l r } 
\text { Direct material used } & \$ 12 \
\text { Direct labor } & 18 \
\text { Variable manufacturing overhead } & 25 \
\text { Fixed manufacturing overhead } & 29 \
\text { Variable selling and administrative cost } & 10 \
\text { Fixed selling and administrative cost } & 17
\end{array}$$ Under absorption costing, each unit of the company's inventory would be carried at:
A) $35.
B) $55.
C) $65.
D) $84.
E) None of the other answers are correct.

Quizplus · Accepted Answer

Under absorption costing, inventory is valued at the sum of direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead: $12 + $18 + $25 + $29 = $84.

Lone Star Has Computed the Following Unit Costs for the Year