Meow Foods had 2,000 25-pound bags of cat food in beginning inventory. During 2014, the company manufactured 16,000 bags and sold 15,000 units. Each bag of food is sold for $17. Assume the same unit costs in all years. The company experienced the following costs:
Direct materials $4.50 per unit
Direct labor $2.10 per unit
Variable manufacturing overhead $1.90 per unit
Variable selling $1.00 per unit
Fixed manufacturing overhead $48,000
Fixed selling $24,000
Fixed administrative $30,000
If the company uses variable costing, at what amount is the ending inventory for the year valued?

Question

Quizplus · Accepted Answer

First, we need to calculate the cost per unit:
Direct materials + Direct labor + Variable manufacturing overhead = $4.50 + $2.10 + $1.90 = $8.50 per unit

Then, we can calculate the cost of goods sold:
Beginning inventory = 2,000 bags
Add: Units manufactured = 16,000 bags
Less: Units sold = 15,000 bags
Ending inventory = 3,000 bags

Cost of goods sold = 15,000 bags x $8.50 per bag = $127,500

Next, we can calculate the variable costs of the ending inventory:
3,000 bags x $8.50 per bag = $25,500

Finally, we can add the fixed manufacturing overhead, which is not included in variable costing, to get the total ending inventory value:
$25,500 + $48,000 = $73,500

However, we are only looking for the variable costing ending inventory value, so the correct answer is $25,500 (option A).

Meow Foods Had 2,000 25-Pound Bags of Cat Food in Beginning