Cutterski Corporation manufactures a propeller. Shown below is Cutterski's cost structure: In its first year of operations, Cutterski produced 60,000 propellers but only sold 54,000. What is the total cost that would be assigned to Cutterski's finished goods inventory at the end of the first year of operations under variable costing?

Question

Cutterski Corporation manufactures a propeller. Shown below is Cutterski's cost structure:  In its first year of operations, Cutterski produced 60,000 propellers but only sold 54,000. What is the total cost that would be assigned to Cutterski's finished goods inventory at the end of the first year of operations under variable costing?

Quizplus · Accepted Answer

Under variable costing, only variable manufacturing costs are included in the cost of goods sold. The fixed manufacturing costs are treated as period expenses and are not included in the cost of goods sold, but are instead expensed in the period in which they are incurred. Therefore, the total cost that would be assigned to Cutterski's finished goods inventory at the end of the first year of operations under variable costing is:
Variable manufacturing cost per unit x number of unsold units
= ($100 + $20 + $10 + $30) x (60,000 - 54,000)
= $684,000

Cutterski Corporation Manufactures a Propeller