The accounting records for Poole Manufacturing Company included the following cost information relating to its first year of operations: 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?
$$\begin{array} { | l | c r | }
\hline \text { Direct materials } & \$ & 60,000 \
\hline \text { Direct labor } & \$ & 80,000 \
\hline \text { Fixed manufacturing overhead } & \$ & 100,000 \
\hline \text { Variable manufacturing overhead } & \$ & 20,000 \
\hline
\end{array}$$

Question

The accounting records for Poole Manufacturing Company included the following cost information relating to its first year of operations: 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?
$$\begin{array} { | l | c r | } 
\hline \text { Direct materials } & \$ & 60,000 \
\hline \text { Direct labor } & \$ & 80,000 \
\hline \text { Fixed manufacturing overhead } & \$ & 100,000 \
\hline \text { Variable manufacturing overhead } & \$ & 20,000 \
\hline
\end{array}$$

Quizplus · Accepted Answer

Under absorption costing, the cost of finished goods includes direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead. The total manufacturing cost is $260,000 ($60,000 + $80,000 + $20,000 + $100,000). The cost per unit is $26 ($260,000 / 10,000 units). The ending inventory is 4,000 units (10,000 produced - 6,000 sold), so the finished goods inventory is $104,000 (4,000 units x $26 per unit).

The Accounting Records for Poole Manufacturing Company Included the Following