A company has the following data for the month of July:Production: 1,500 unitsSales: 1,200 unitsSelling price: $25 per unitVariable manufacturing costs: $10 per unitFixed manufacturing costs: $6,000Variable selling and administrative costs: $3 per unit soldFixed selling and administrative costs: $2,000Calculate the closing inventory value using absorption costing.
Question
A company has the following data for the month of July:Production: 1,500 unitsSales: 1,200 unitsSelling price: 10 per unitFixed manufacturing costs: 3 per unit soldFixed selling and administrative costs: $2,000Calculate the closing inventory value using absorption costing.
Solution
To calculate the closing inventory value using absorption costing, we first need to calculate the cost per unit including both variable and fixed costs.
Step 1: Calculate the total manufacturing cost Variable manufacturing cost per unit = 6,000 / 1,500 units = 10 + 14 per unit
Step 2: Calculate the total cost per unit Variable selling and administrative cost per unit = 2,000 / 1,200 units = 14 + 1.67 = $18.67 per unit
Step 3: Calculate the closing inventory value Closing inventory = Total units produced - Total units sold = 1,500 units - 1,200 units = 300 units Closing inventory value = Closing inventory * Total cost per unit = 300 units * 5,601
So, the closing inventory value using absorption costing is $5,601.
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