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Assumes ABC Company had 50 units in beginning Finished Goods Inventory and sold 1,213 units. Additional data includes: Units produced 1,200 units Direct materials $12 per unit Direct labor 8 per unit Variable manufacturing overhead 2 per unit Fixed manufacturing overhead 7 per unit Using absorption costing, what is the dollar amount of ending Finished Goods Inventory?

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Answer:

Dollar amount of ending Finished Goods Inventory = $1,073

Explanation:

The first step is to calculate the cost per unit.

Using absorption costing, the cost of one unit is  

Cost per unit = direct materials + direct labor + variable manufacturing overhead + fixed manufacturing overhead per unit.

[tex]Cost = 12 + 8 +2 + 7\\Cost = 29[/tex]

Now, the number of units left in inventory should be defined

Finished Goods Inventory (FGI) =  Beginning Finished Goods Inventory + Units produced - units sold

[tex]FGI = 50 +1200 - 1213\\FGI = 37[/tex]

The dollar amount of ending Finished Goods Inventory is FGI multiplied by the cost per unit.

[tex]37*29 = 1,073[/tex]

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