Figure 8-5. Sanders Company has the following information for 2011:
There were no beginning inventories.
Refer to Figure 8-5.What is the value of ending inventory for Sanders using the absorption costing method?
A)$360,000
B)$280,000
C)$220,000
D)$380,000

Question

Figure 8-5. Sanders Company has the following information for 2011:
 There were no beginning inventories.
Refer to Figure 8-5.What is the value of ending inventory for Sanders using the absorption costing method?
A)$360,000 
B)$280,000 
C)$220,000 
D)$380,000

Quizplus · Accepted Answer

The value of ending inventory using the absorption costing method is calculated as:
Ending inventory = Total cost of goods manufactured - Cost of goods sold
= ($800,000 + $200,000 + $100,000) - ($900,000 + $100,000)
= $1,100,000 - $1,000,000
= $100,000
However, since there were no beginning inventories, the value of ending inventory must be added to the cost of goods sold to determine the cost of goods available for sale. Therefore, the value of ending inventory using the absorption costing method is:
Ending inventory = $100,000 + $260,000
= $360,000. Thus, the correct answer is A) $360,000.