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MicroDecor produces trendy microwave ovens. Each unit sells for $600. During 20X7, the company produced 22,000 units, and sold 20,000 units. Beginning inventory contained a
| MicroDecor produces trendy microwave ovens. Each unit sells for $600. During 20X7, the company produced 22,000 units, and sold 20,000 units. Beginning inventory contained a total of 3,000 units. Production and SG&A costs have been stable for many years. Assume the per units costs in beginning and ending inventory are identical. Per unit cost information follows: | |||
| Direct materials cost | $ 150 | ||
| Direct labor cost | 100 | ||
| Variable factory overhead | 75 | ||
| Variable SG&A | 50 | ||
| Annual fixed manufacturing overhead is $242,000. Annual fixed SG&A totals $1,450,000. | |||
| (a) | Determine the number of units in ending inventory, and calculate the total carrying cost using both variable and absorption costing. | ||
| (b) | Calculate 20X7 net income using variable costing. | ||
| (c) | Calculate 20X7 net income using absorption costing. | ||
| (d) | In practice, is it likely that per unit costs would be identical in beginning and ending inventory? Even if costs were stable, could the cost of beginning and ending inventory differ with absorption costing? | ||
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