Meow Foods had 2,000 25-pound bags of cat food in beginning inventory.During 2017, 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: $\begin{array}{lr}
\text { Direct materials } & \$ 4.50 \text { per unit } \
\text { Direct labor } & \$ 2.10 \text { per unit } \
\text { Variable manufacturing overhead } & \$ 1.90 \text { per unit } \
\text { Variable selling } & \$ 1.00 \text { per unit } \
\text { Fixed manufacturing overhead } & \$ 48,000 \
\text { Fixed selling } & \$ 24,000 \
\text { Fixed administrative } & \$ 30,000
\end{array}$ If the company uses variable costing, at what amount is the ending inventory for the year valued?

Question

Quizplus · Accepted Answer

Under variable costing, only variable costs are included in the cost of goods sold and ending inventory. Therefore, the ending inventory is valued at the variable cost per unit multiplied by the number of units in ending inventory.Variable cost per unit = Direct materials + Direct labor + Variable manufacturing overhead + Variable selling = $4.50 + $2.10 + $1.90 + $1.00 = $9.50Ending inventory = (Beginning inventory + Production) - Sales = (2,000 + 16,000) - 15,000 = 3,000 unitsEnding inventory value = Variable cost per unit x Ending inventory = $9.50 x 3,000 = $28,500

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