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28 Sep 2019
Sierra Company incurs the following costs to produce and sell asingle product.
Variable costs per unit:
Direct materials $9
Direct labor $10
Variable manufacturing overhead $5
Variable selling and administrative expenses $3
Fixed costs per year:
Fixed manufacturing overhead $150,000
Fixed selling and administrative expenses $400,000
During the last year, 25,000 units were produced and 22,000 unitswere sold. The Finished Goods inventory account at the end of theyear shows a balance of $72,000 for the 3,000 unsold units.
Requirement 1:
(a) Is the company using absorption costing or variable costing tocost units in the Finished Goods inventory account?
(b) Compute the total cost of finished goods inventory usingvariable costing and absorption costing.
Variable Costing Absorption Costing
Total Cost $ $
Requirement 2:
Assume that the company wishes to prepare financial statements forthe year to issue to its stockholders.
(a) Is the $72,000 figure for Finished Goods inventory the correctamount to use on these statements for external reportingpurposes?
Yes or No
(b)
At what dollar amount should the 3,000 units be carried in theinventory for external reporting purposes?
Finished Goods Inventory $
Sierra Company incurs the following costs to produce and sell asingle product.
Variable costs per unit:
Direct materials $9
Direct labor $10
Variable manufacturing overhead $5
Variable selling and administrative expenses $3
Fixed costs per year:
Fixed manufacturing overhead $150,000
Fixed selling and administrative expenses $400,000
During the last year, 25,000 units were produced and 22,000 unitswere sold. The Finished Goods inventory account at the end of theyear shows a balance of $72,000 for the 3,000 unsold units.
Requirement 1:
(a) Is the company using absorption costing or variable costing tocost units in the Finished Goods inventory account?
(b) Compute the total cost of finished goods inventory usingvariable costing and absorption costing.
Variable Costing Absorption Costing
Total Cost $ $
Requirement 2:
Assume that the company wishes to prepare financial statements forthe year to issue to its stockholders.
(a) Is the $72,000 figure for Finished Goods inventory the correctamount to use on these statements for external reportingpurposes?
Yes or No
(b)
At what dollar amount should the 3,000 units be carried in theinventory for external reporting purposes?
Finished Goods Inventory $
Variable costs per unit:
Direct materials $9
Direct labor $10
Variable manufacturing overhead $5
Variable selling and administrative expenses $3
Fixed costs per year:
Fixed manufacturing overhead $150,000
Fixed selling and administrative expenses $400,000
During the last year, 25,000 units were produced and 22,000 unitswere sold. The Finished Goods inventory account at the end of theyear shows a balance of $72,000 for the 3,000 unsold units.
Requirement 1:
(a) Is the company using absorption costing or variable costing tocost units in the Finished Goods inventory account?
(b) Compute the total cost of finished goods inventory usingvariable costing and absorption costing.
Variable Costing Absorption Costing
Total Cost $ $
Requirement 2:
Assume that the company wishes to prepare financial statements forthe year to issue to its stockholders.
(a) Is the $72,000 figure for Finished Goods inventory the correctamount to use on these statements for external reportingpurposes?
Yes or No
(b)
At what dollar amount should the 3,000 units be carried in theinventory for external reporting purposes?
Finished Goods Inventory $
Patrina SchowalterLv2
28 Sep 2019
