Yankee Corporation manufactures a single product.The company has the following cost structure: Last year, 4, 000 units were produced and 3, 500 units were sold.There were no beginning inventories. The carrying value on the balance sheet of the ending finished goods inventory under variable costing would be:
A)the same as under absorption costing
B)$1, 500 less than under absorption costing
C)$2, 000 higher than under absorption costing
D)$2, 000 less than under absorption costing

Question

Yankee Corporation manufactures a single product.The company has the following cost structure:  Last year, 4, 000 units were produced and 3, 500 units were sold.There were no beginning inventories. The carrying value on the balance sheet of the ending finished goods inventory under variable costing would be:
A)the same as under absorption costing 
B)$1, 500 less than under absorption costing 
C)$2, 000 higher than under absorption costing 
D)$2, 000 less than under absorption costing

Quizplus · Accepted Answer

Fixed manufacturing overhead per unit = Fixed manufacturing overhead ÷ Units produced
= $12, 000 ÷ 4, 000 units = $3 per unit
Units in ending inventory = Units in beginning inventory + Units produced - Units sold
= 0 units + 4, 000 units - 3, 500 units = 500 units
Manufacturing overhead deferred in (released from)inventory = Fixed manufacturing overhead in ending inventory - Fixed manufacturing overhead in beginning inventory = ($3 per unit × 500 units)- $0 = $1, 500
Therefore, inventory will be $1, 500 less under variable costing than under absorption costing.

Yankee Corporation Manufactures a Single Product