Last year, Richmon Company produced 10,000 units and sold 6,000 units at a price of $20.Costs for the last year were as follows:

Fixed factory overhead is applied based on expected production.Last year, Richmon expected to produce 10,000 units.Assuming that beginning inventory was zero, what is the value of ending inventory under absorption costing? (Note: Round answers to the nearest dollar.)
A) $50,000
B) $38,000
C) $46,400
D) $10,000
E) $31,000

Question

Last year, Richmon Company produced 10,000 units and sold 6,000 units at a price of $20.Costs for the last year were as follows:

Fixed factory overhead is applied based on expected production.Last year, Richmon expected to produce 10,000 units.Assuming that beginning inventory was zero, what is the value of ending inventory under absorption costing? (Note: Round answers to the nearest dollar.)
A) $50,000 
B) $38,000 
C) $46,400 
D) $10,000 
E) $31,000

Quizplus · Accepted Answer

Units Ending Inventory = Units Beginning Inventory + Units Produced - Units Sold
= 0 + 10,000 - 6,000 = 4,000 units
 
Unit product cost = (Direct materials + Direct labor + Variable overhead + Fixed overhead) ÷ Units produced
= ($30,000 + $38,000 + $8,000 + $40,000) / 10,000 = $11.60
 
Value of Ending Inventory = Units Ending Inventory × Absorption Unit Product Cost
= 4,000 units × $11.60 = $46,400

Last Year, Richmon Company Produced 10,000 Units and Sold 6,000