The Browning Company manufactures a single product;the standard costs per unit being variable manufacturing $8,fixed manufacturing $6.Selling and administrative costs are $2 per unit sold.The selling price is $20 per unit.Actual and budgeted fixed overhead is $900 000 for the year.Information about Browning's production activity for the year follows:
What is the value of closing inventory of finished goods under variable costing?

Question

Quizplus · Accepted Answer

Under variable costing, fixed manufacturing overhead is treated as a period cost and is not included in the cost of goods sold. Therefore, the value of closing inventory of finished goods under variable costing can be calculated as:
Direct materials cost + Direct labor cost + Variable manufacturing overhead cost
= ($8/unit x 75,000 units) + ($0/unit x 75,000 units) + ($2/unit x 75,000 units)
= $600,000 + $0 + $150,000
= $750,000
Closing inventory of finished goods under variable costing = Number of units in closing inventory x Cost per unit
= 10,000 units x $75/unit
= $750,000
However, since the fixed manufacturing overhead cost is a period cost, it is included in the budgeted fixed overhead of $900,000. Therefore, the budgeted fixed overhead should not be used in the calculation of the closing inventory of finished goods under variable costing.

The Browning Company Manufactures a Single Product;the Standard Costs Per