A company produces a single product Last year fixed manufact

A company produces a single product. Last year, fixed manufacturing overhead was $30,000 in total. Variable production costs were $16 per unit. Fixed selling and administrative costs were $20,000 in total. Variable selling and administrative costs were $4 per unit. There was no beginning inventory. During the year, 3,000 were produced and 2,400 units were sold at a price of $40 per unit. What would be the ending finished goods inventory balance when using absorption costing?

$15,600 $9,600 $0 $12,000

Solution

Fixed manufacturing overhead per unit = Total manufacturing overhead/No. of units produced

                                                        = $ 30,000 /3,000 = $ 10

Unit cost under absorption costing = Unit variable product cost + Fixed manufacturing overhead per unit

                                                    = $ 16 + $ 10 = $ 26

No. of units in ending inventory = 3,000 – 2,400 = 600 units

Ending finished goods inventory balance = Cost per unit x no. of units in ending inventory

                                                        = $ 26 x 600 = $ 15,600

Hence option “$ 15,600” is correct answer.