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Sprinkle Co. sells its product for $60 per unit. During 2019, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $15, direct labor $9, and variable overhead $3. Fixed costs are: $720,000 manufacturing overhead, and $90,000 selling and administrative expenses.
-Under absorption costing, what amount of fixed overhead is deferred to a future period?
A) $30,000
B) $120,000
C) $150,000
D) $720,000

Question

Use the following information for questions 
Sprinkle Co. sells its product for $60 per unit. During 2019, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $15, direct labor $9, and variable overhead $3. Fixed costs are: $720,000 manufacturing overhead, and $90,000 selling and administrative expenses.
-Under absorption costing, what amount of fixed overhead is deferred to a future period?
A) $30,000
B) $120,000
C) $150,000
D) $720,000

Quizplus · Accepted Answer

Under absorption costing, all manufacturing costs, including fixed overhead, are allocated to the units produced. Since not all units produced were sold, some fixed overhead is deferred to future periods. The fixed overhead cost per unit is $720,000 / 60,000 units = $12 per unit. With 10,000 units (60,000 produced - 50,000 sold) in ending inventory, the deferred fixed overhead is 10,000 units * $12/unit = $120,000.

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