Lorillard Corporation has the following information for April, May, and June 2018: $\begin{array} { l r r r } & \text { April } & \text { May } & \text { June } \ \text { Units produced } & 12,500 & 12,500 & 12,500 \ \text { Units sold } & 8,750 & 10,625 & 13,125 \end{array}$
Production costs per unit (based on 12,500 units) are as follows:
$\begin{array}{lr}
\text { Direct materials } & \$ 15 \
\text { Direct labor } & 10 \
\text { Variable factory overhead } & 7.50 \
\text { Fixed factory overhead } & 5 \
\text { Variable selling and admin. expenses } & 12.50 \
\text { Fixed selling and admin. expenses } & 5
\end{array}$ There were no beginning inventories for April 2018, and all units were sold for $50. Costs are stable over the three months.
What is the June ending inventory cost for Lorillard Corporation using the variable costing method?
A)$75,000
B)$125,000
C)$162,500
D)$187,500

Question

Quizplus · Accepted Answer

Under the variable costing method, only variable costs are included in inventory costs. For Lorillard Corporation, the variable costs per unit are:- Direct materials: $15- Direct labor: $10- Variable factory overhead: $7.50- Variable selling and admin. expenses: $12.50 (Note: This is not included in inventory costs but is relevant for calculating total variable costs for units sold.)The total variable production cost per unit is $15 + $10 + $7.50 = $32.50.In June, Lorillard produced 12,500 units but sold 13,125 units. Since there were no beginning inventories in April and production was constant over the three months, the ending inventory in June would be the excess of production over sales from April and May, which is used to meet June's sales. However, since sales in June exceed production, there is no ending inventory for June under these circumstances, indicating a mistake in the premise of the question as presented. Given the data, it's not possible to have an ending inventory for June if all units produced in previous months were sold by June, assuming no beginning inventory in April and constant production. The calculation for ending inventory cost would typically involve the number of units in ending inventory multiplied by the variable cost per unit, but with the given data, it seems there's an inconsistency in the premise regarding inventory calculation for June. Re-evaluating the provided information and the question's premise might be necessary to accurately determine the ending inventory cost or to correct the scenario presented.

Lorillard Corporation Has the Following Information for April, May, and June