A manufacturer reports the following costs to produce 10,000 units in its first year of operations: Direct materials, $10 per unit, Direct labor, $6 per unit, Variable overhead, $70,000, and Fixed overhead, $120,000.
- Of the 10,000 units produced, 9,200 were sold, and 800 remain in inventory at year-end. Under absorption costing, the value of the inventory is:

Question

Quizplus · Accepted Answer

Under absorption costing, the value of the inventory is equal to the total manufacturing costs incurred to produce the units in inventory. In this case, the total manufacturing costs are $10 per unit for direct materials, $6 per unit for direct labor, $7 per unit for variable overhead, and $12 per unit for fixed overhead. Therefore, the total manufacturing cost per unit is $35. The value of the inventory is equal to the total manufacturing cost per unit multiplied by the number of units in inventory, which is $35 x 800 = $28,000.

A Manufacturer Reports the Following Costs to Produce 10,000 Units