Lorillard Corporation has the following information for April, May, and June 2016: Production costs per unit (based on 12,500 units) are as follows:
There were no beginning inventories for April 2016, and all units were sold for $50. Costs are stable over the three
Months.
What is the April ending inventory for Lorillard Corporation using the variable costing method?
A) $312,500
B) $187,500
C) $121,875
D) $140,000

Question

Lorillard Corporation has the following information for April, May, and June 2016:  Production costs per unit (based on 12,500 units) are as follows:
 There were no beginning inventories for April 2016, and all units were sold for $50. Costs are stable over the three
Months.
What is the April ending inventory for Lorillard Corporation using the variable costing method?
A) $312,500 
B) $187,500 
C) $121,875 
D) $140,000

Quizplus · Accepted Answer

Using the variable costing method, we only include variable costs in the cost of goods sold. The fixed costs are treated as period expenses. Therefore, for each unit produced, we only include the variable production cost of $12 per unit.

April production = 12,500 units
April cost of goods sold = 12,500 units x $12 per unit = $150,000
April sales revenue = 12,500 units x $50 per unit = $625,000
April gross profit = $625,000 - $150,000 = $475,000

To calculate the April ending inventory, we need to subtract the April cost of goods sold from the total April production cost:

April production cost = 12,500 units x $24 per unit = $300,000
April ending inventory = $300,000 - $150,000 = $150,000

Therefore, the correct answer is C) $121,875.

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