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    Gabriela21's Avatar
    Gabriela21 Posts: 1, Reputation: 1
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    #1

    Jun 21, 2009, 01:56 AM
    13 B3 Comparison of variable costing and absorption costing
    Consider the following information pertaining to a year’s operations of Youngstown Manufacturing:
    Units sold 1,400
    Units produced 1,600
    Direct labor $4,200
    Direct materials used 3,500
    Fixed manufacturing overhead 2,200
    Variable manufacturing overhead 300
    Selling and administrative expenses (all fixed) 700
    Beginning inventories 0
    Contribution margin 5,600
    Direct-material inventory, end 800
    There are no work-in-process inventories.
    1. What is the ending finished-goods inventory cost under absorption costing?
    2. What is the ending finished-goods inventory cost under variable costing?

    Thanks,
    rehmanvohra's Avatar
    rehmanvohra Posts: 739, Reputation: 27
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    #2

    Jul 1, 2009, 05:24 AM

    1. What is the ending finished-goods inventory cost under absorption costing? - 1,275: (4,200+3,500+2,200+300)x200/1600)
    2. What is the ending finished-goods inventory cost under variable costing? - 1,000: (4,200+3,500+300)x200/1600)
    The difference - 1,275 - 1,000 = 275 is due to fixed overheads in the inventory under absorption costing - 2,200 x 200/1600 = 275
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