The Stratford Manufacturing Co. is considering adopting a direct costing system. The management of The Stratford Manufacturing Co. has asked the controller what effect adopting the direct costing system would have on inventories. In answering the questions, the following figures, representing last year’s operations, are used: nju5

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Units produced, 50,000 of which 15,000 were not sold: Direct materials........... $250,000 Direct labor..... 285,000 Factory overhead: Variable expenses 175,000 Fixed expenses........ 85,000 Required: a The cost to be assigned the 15,000 units in inventory using absorption costing. b The cost to be assigned the 15,000 units in inventory using direct costing.