Bofors AB is a Swedish company that incurs the following costs to produce and sell a single product. During the last year, 30,000 units were produced and 25,000 units were sold. The Finished Goods inventory account at the end of the year shows a balance of SEK850,000 for the 5,000 unsold units.

Required
1. Is the company using absorption costing or variable costing to cost units in the Finished Goods inventory
account? Show computations to support your answer.
2. Assume that the company wishes to prepare financial statements for the year to issue to its stockholders.
(a) Is the SEK850,000 figure for the Finished Goods inventory the correct amount to use on these statements for external reporting purposes? Explain.
(b) At what SEK amount should the 5,000 units be carried in inventory for external reporting purposes?

Transcribed Image Text:

Variable costs per unit: Direct materials Direct labour Variable manufacturing overhead Variable selling and administrative expenses Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses SEK100 50 20 40 SEK900,000 SEK3,000,000