Question
Sparn Limited incurs the following costs to produce and sell a single product: Variable costs per unit: Direct materials $ 21 Direct labour 14 Variable
Sparn Limited incurs the following costs to produce and sell a single product:
Variable costs per unit: | |||
Direct materials | $ | 21 | |
Direct labour | 14 | ||
Variable manufacturing overhead | 5 | ||
Variable selling and administrative expenses | 4 | ||
Fixed costs per year: | |||
Fixed manufacturing overhead | 175,200 | ||
Fixed selling and administrative expenses | 518,700 | ||
During the last year, 43,800 units were produced and 27,300 units were sold. The Finished Goods Inventory account at the end of the year shows a balance of $220,000 for the 5,500 unsold units.
Required:
1-a. Is the company using absorption costing or variable costing to cost units in the Finished Goods Inventory account?
multiple choice 1
Absorption costing
Variable costing
1-b. Show computations to support your answer.
2. Assume that the company wishes to prepare financial statements for the year to issue to its shareholders.
a. Is the $220,000 figure for finished goods inventory the correct amount to use on these statements for external reporting purposes?
multiple choice 2
Yes
No
b. At what dollar amount should the 5,500 units be carried in inventory for external reporting purposes?
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