The Southern Corporation manufactures a single product and has the following cost structure: Variable costs per unit: $ 38 Production Selling and administrative $ 14 Fixed costs per year: Production $ 140,000 Selling and administrative $ 84,000 Last year, 7,000 units were produced and 6,800 units were sold. There was no beginning inventory. The carrying value on the balance sheet of the ending inventory of finished goods under variable costing would be: Multiple Choice the same as absorption costing. $6,800 greater than under absorption costing. $6,800 less than under absorption costing. $4,000 less than under absorption costing.

$4,000 less than under absorption costing.

Explanation:

For computation of balance sheet of the ending inventory of finished goods under variable costing first we need to find out the ending inventory under variable costing and ending inventory under absorption costing is shown below:-

Ending inventory under variable costing = (Number of units produced - Number of units sold) × Variable cost per unit

= (7,000 - 6,800) × $38

= 200 × $38

= $7,600

Ending inventory under absorption costing = (Production cost per unit + Fixed production cost per unit) - Cost of goods sold

= ($38 × 7,000 + $140,000) - (6,800 × $406,000 ÷ 7,000)

= $406,000 - $394,400

= $11,600

Ending inventory of finished goods under variable costing = Ending inventory under variable costing - Ending inventory under absorption costing

= $7,600 - $11,600

= -$4,000

Therefore $4,000 less than under absorption costing.

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