Exhibit 20-5 Barron Company manufactured 150,000 units during the year but only sold 130,000 of these units. At the beginning of the year, Barron had no beginning finished goods inventory. The following unit costs were incurred during the year:
Refer to Exhibit 20-5. Using variable costing, what is the value of Barron's finished goods inventory at the end of the year?

Question

Exhibit 20-5 Barron Company manufactured 150,000 units during the year but only sold 130,000 of these units. At the beginning of the year, Barron had no beginning finished goods inventory. The following unit costs were incurred during the year:
 Refer to Exhibit 20-5. Using variable costing, what is the value of Barron's finished goods inventory at the end of the year?

Quizplus · Accepted Answer

Under variable costing, only variable manufacturing costs are included in the cost of goods sold. Therefore, the fixed manufacturing costs are not included in the cost of goods sold and are instead treated as period costs. This means that the value of the finished goods inventory at the end of the year will only include the variable manufacturing costs of the unsold units.

Variable manufacturing costs per unit = $25 + $10 + $5 = $40
Inventory valuation = Variable manufacturing costs per unit x Unsold units 
= $40 x (150,000 - 130,000) 
= $40 x 20,000 
= $800,000

Therefore, the value of Barron's finished goods inventory at the end of the year is $60,000 ($800,000 divided by 150,000 units). The correct answer is choice B.

Exhibit 20-5 Barron Company Manufactured 150,000 Units During the Year