Whitney, Inc., produces a single product. The following data pertain to one month's operations:
-The carrying value on the balance sheet of the ending finished goods inventory under absorption costing would be:
A)$16,000
B)$10,000
C)$12,000
D)$21,000

Question

Whitney, Inc., produces a single product. The following data pertain to one month's operations: 
-The carrying value on the balance sheet of the ending finished goods inventory under absorption costing would be:
A)$16,000 
B)$10,000 
C)$12,000 
D)$21,000

Quizplus · Accepted Answer

The ending finished goods inventory under absorption costing includes both variable and fixed manufacturing costs. In this case, the variable manufacturing cost per unit is $5 ($45 - $40), and the fixed manufacturing cost per unit is $3 ($60,000 / 20,000 units). Therefore, the total cost per unit under absorption costing is $8 ($5 + $3). 
The ending finished goods inventory consists of 1,500 units, so the carrying value would be:
$8 per unit x 1,500 units = $12,000. 
Therefore, the best choice is C.