The accounting records for Poole Manufacturing Company included the following cost information relating to its first year of operations: $\begin{array}{|l|lr|}
\hline \text {Direct materials} &\$ & 60,000 \
\hline \text {Direct labor} &\$ & 80,000 \
\hline \text {Fixed manufacturing overhead } &\$ & 100,000 \
\hline \text {Variable manufacturing overhead} &\$ & 20,000 \
\hline
\end{array}$ Assume the company produced 10,000 units of inventory and sold 6,000 of these units for $192,000.What amount of finished goods will be reported on the balance sheet at the end of the year under absorption costing?
A) $104,000
B) $260,000
C) $96,000
D) $64,000

Question

The accounting records for Poole Manufacturing Company included the following cost information relating to its first year of operations: $\begin{array}{|l|lr|}
\hline  \text {Direct materials} &\$ & 60,000 \
\hline  \text {Direct labor} &\$ & 80,000 \
\hline  \text {Fixed manufacturing overhead } &\$ & 100,000 \
\hline  \text {Variable manufacturing overhead} &\$ & 20,000 \
\hline
\end{array}$ Assume the company produced 10,000 units of inventory and sold 6,000 of these units for $192,000.What amount of finished goods will be reported on the balance sheet at the end of the year under absorption costing?
A) $104,000
B) $260,000
C) $96,000
D) $64,000

Quizplus · Accepted Answer

Under absorption costing, all manufacturing costs are included in the cost of goods manufactured, regardless of whether they are fixed or variable. Therefore, the finished goods inventory will include the following costs:Direct materials: $60,000Direct labor: $80,000Fixed manufacturing overhead: $100,000Variable manufacturing overhead: $20,000Total: $260,000Since the company produced 10,000 units and sold 6,000 units, the finished goods inventory will include the cost of 4,000 units, which is $104,000 (260,000 / 10,000 * 4,000).

The Accounting Records for Poole Manufacturing Company Included the Following