At the end of the first year of operations, 5,200 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows:

direct materials $35
direct labor $16.80
fixed company overhead $5.60
variable factory overhead $4.90

Determine the cost of the finished goods inventory reported on the balance sheet under (a) the absorption costing concept and (b) the variable costing concept.

Absorption costing: $

Variable costing: $

Instructions are below.

Explanation:

Giving the following information:

5,200 units remained in the finished goods inventory.

direct materials $35

direct labor $16.80

fixed company overhead $5.60

variable factory overhead $4.90

The difference between the variable costing method and the absorption costing is that the last one includes the fixed overhead as a product cost.

A) Absorption costing:

Unit product cost= 35 + 16.8 + 5.6 + 4.9= $62.3

Ending inventory= 62.3*5,200= $323,960

B) Variable costing:

Unit product cost= 35 + 16.8 + 4.9= $56.7

Ending inventory= 56.7*5,200= $294,840

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