Sparn Limited incurs the following costs to produce and sell a single product:

During the last year, $54,000$ units were produced and $46,500$ units were sold. The Finished Goods Inventory account at the end of the

year shows a balance of $$285,000$ for the $7,500$ unsold units.

Required:

$1-$a$.$ Is the company using absorption costing or variable costing to cost units in the Finished Goods Inventory account?

Absorption costing

Variable costing

$1-$b$.$ Show computations to support your answer.

Assume that the company wishes to prepare financial statements for the year to issue to its shareholders.

a$.$ Is the $$285,000$ figure for finished goods inventory the correct amount to use on these statements for external reporting purposes?

Yes

No

b$.$ At what dollar amount should the $7,500$ units be carried in inventory for external reporting purposes?