Leesburg Bags produces backpacks.The costs and prices for the backpacks follow (Assume the same unit costs in all years): $$\begin{array} { l r }
\text { Selling price } & \$ 23.00 \text { per backpack } \
\text { Variable costs: } & \
\text { Production } & \$ 11.00 \text { per backpack } \
\text { Selling } & \$ 2.00 \text { per backpack } \
\text { Fixed Costs: } & \
\text { Production } & \$ 900,000 \text { per year } \
\text { Selling and administrative } & \$ 540,000 \text { per year }
\end{array}$$ Leesburg Bags produced 250,000 backpacks for the year and sold 200,000.There was no beginning inventory, and costs throughout the year were stable.How much is the cost of ending inventory under variable costing?

Question

Leesburg Bags produces backpacks.The costs and prices for the backpacks follow (Assume the same unit costs in all years): $$\begin{array} { l r } 
\text { Selling price } & \$ 23.00 \text { per backpack } \
\text { Variable costs: } & \
\text { Production } & \$ 11.00 \text { per backpack } \
\text { Selling } & \$ 2.00 \text { per backpack } \
\text { Fixed Costs: } & \
\text { Production } & \$ 900,000 \text { per year } \
\text { Selling and administrative } & \$ 540,000 \text { per year }
\end{array}$$ Leesburg Bags produced 250,000 backpacks for the year and sold 200,000.There was no beginning inventory, and costs throughout the year were stable.How much is the cost of ending inventory under variable costing?

Quizplus · Accepted Answer

Under variable costing, only variable costs are included in inventory costs. The variable costs per backpack are $11.00 (production) + $2.00 (selling) = $13.00. With 50,000 backpacks unsold (250,000 produced - 200,000 sold), the cost of ending inventory is 50,000 backpacks * $13.00 per backpack = $650,000.

Leesburg Bags Produces Backpacks Leesburg Bags Produced 250,000 Backpacks for the Year and Sold