Question

Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of $12. Costs for last year were as follows: Direct materials $25,000 Direct labor 35,000 Variable factory overhead 12,000 Fixed factory overhead 37,000 Variable selling expense 9,000 Fixed selling expense 7,500 Fixed administrative expense 15,500 Assuming that beginning inventory was zero, what is the value of ending inventory under variable costing? a.$2,500 b.$5,000 c.$3,720 d.$3,300 e.$7,200

Answer 1

Answer:

e.$7,200

Explanation:

For computing the closing stock under variable costing, first we have to determine the product cost per unit which is shown below:

= (Direct materials cost + direct labor cost + Variable factory overhead cost) ÷ (production units)

= ($25,000 + $35,000 + $12,000) ÷ (20,000 units)

= $3.6 per unit

Now the closing stock would be

= 2,000 units × 3.6 per unit

= $7,200

The ending inventory units would be

= 20,000 - $18,000

= 2,000