Question
Question No-1 XYZ, Inc., incurs the following costs to produce and sell a single product. Variable costs per unit: Direct materials . . . .
Question No-1
XYZ, Inc., incurs the following costs to produce and sell a single product.
Variable costs per unit:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5
Variable manufacturing overhead . . . . . . . . . . . . . . $2
Variable selling and administrative expenses . . . . $4
Fixed costs per year:
Fixed manufacturing overhead . . . . . . . . . . . . . . . . . . $90,000
Fixed selling and administrative expenses . . . . . . .$300,000
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 $85,000 for the 5,000 unsold units.
Required:
- Is the company using absorption costing or variable costing to cost units in the Finished Goods inventory account? Show computations to support your answer.
- Assume that the company wishes to prepare financial statements for the year to issue to its stockholders.
- Is the $85,000 figure for Finished Goods inventory the correct amount to use on these statements for external reporting purposes? Explain.
- At what dollar amount should the 5,000 units be carried in inventory for external reporting purposes?
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