Lorillard Corporation has the following information for April, May, and June 2014: There were no beginning inventories for April 2014, and all units were sold for $50. Costs are stable over the three months.
What is the June ending inventory cost for Lorillard Corporation using the variable costing method?
A) $75,000
B) $125,000
C) $162,500
D) $187,500

Question

Lorillard Corporation has the following information for April, May, and June 2014:  There were no beginning inventories for April 2014, and all units were sold for $50. Costs are stable over the three months.
What is the June ending inventory cost for Lorillard Corporation using the variable costing method?
A) $75,000 
B) $125,000 
C) $162,500 
D) $187,500

Quizplus · Accepted Answer

Using the variable costing method, we only include variable costs in the cost of goods sold. In this case, the variable cost per unit is given as $30, so the cost of goods sold per unit is $30. Therefore:

April cost of goods sold = 10,000 * $30 = $300,000 
May cost of goods sold = 15,000 * $30 = $450,000 
June cost of goods sold = 20,000 * $30 = $600,000

The total cost of goods sold for the three months is $1,350,000. To calculate the ending inventory for June, we need to know how many units are left over. Since there are no beginning inventories, we can simply add up the units sold and subtract them from the total units available:

Total units available = 10,000 + 15,000 + 20,000 = 45,000 
Units sold = 10,000 + 15,000 + 20,000 = 45,000 
Ending inventory = 45,000 - 45,000 = 0

The June ending inventory cost is therefore $0.

Lorillard Corporation Has the Following Information for April, May, and June