Octagonal Company has the following information for 2018: $\begin{array}{lr}
\text { Selling price } & \$ 150 \text { per unit } \
\text { Variable production costs } & \$ 40 \text { per unit produced } \
\text { Variable selling and admin. expenses } & \$ 16 \text { per unit sold } \
\text { Fixed production costs } & \$ 200,000 \
\text { Fixed selling and admin. expenses } & \$ 140,000 \
\text { Units produced } & 10,000 \text { units } \
\text { Units sold } & 8,000 \text { units }
\end{array}$ There were no beginning inventories.
What is the ending inventory for Eastwood using the absorption costing method?
A)$300,000
B)$180,000
C)$120,000
D)$80,000

Question

Quizplus · Accepted Answer

Under absorption costing, ending inventory is valued at the full cost per unit, which includes both variable and fixed production costs. The cost per unit is calculated as: Variable production cost ($40) + Fixed production cost per unit ($200,000/10,000 units = $20) = $60. Ending inventory is 2,000 units (10,000 produced - 8,000 sold) valued at $60 each, totaling $120,000.

Octagonal Company Has the Following Information for 2018 There Were No Beginning Inventories