In the month of March, the Asai Company produced 100,000 units but only sold 85,000 units. Costs incurred were: If the company utilizes absorption costing, the value in the finished goods inventory account at the end of March will be:
A) $13,200
B) $17,550
C) $13,650
D) $10,800

Question

In the month of March, the Asai Company produced 100,000 units but only sold 85,000 units. Costs incurred were:  If the company utilizes absorption costing, the value in the finished goods inventory account at the end of March will be:
A) $13,200 
B) $17,550 
C) $13,650 
D) $10,800

Quizplus · Accepted Answer

To calculate the value of finished goods inventory using absorption costing, we need to consider both variable and fixed production costs.

Variable cost per unit = $5
Fixed cost per unit = ($30,000 ÷ 100,000 units) = $0.30
Total cost per unit = $5 + $0.30 = $5.30

Value of finished goods inventory = (Total units produced - Total units sold) x Total cost per unit
= (100,000 - 85,000) x $5.30
= 15,000 x $5.30
= $79,500

However, we also need to subtract the cost of goods sold from this amount:

Cost of goods sold = Total units sold x Total cost per unit
= 85,000 x $5.30
= $451,500

Value of finished goods inventory = $79,500 - $451,500
= -$372,000 (Negative value)

Since the cost of goods sold is higher than the value of finished goods inventory, this means the company incurred a loss in the month of March. Therefore, the correct answer is not listed.

In the Month of March, the Asai Company Produced 100,000