Brown Corporation produced 2,200 units during the most recent period. Brown's costs were as follows: Sales totaled 1,800 units ($10,800). If Brown uses absorption costing, the ending inventory would be valued at:
A) $0
B) $928
C) $544
D) $800
E) $856

Question

Brown Corporation produced 2,200 units during the most recent period. Brown's costs were as follows:  Sales totaled 1,800 units ($10,800). If Brown uses absorption costing, the ending inventory would be valued at:
A) $0 
B) $928 
C) $544 
D) $800 
E) $856

Quizplus · Accepted Answer

First, we need to calculate the total cost of production for 2,200 units:

Direct Materials = 2,200 units x $2.50 per unit = $5,500
Direct Labor = 2,200 units x $3.00 per unit = $6,600
Variable Overhead = 2,200 units x $1.00 per unit = $2,200
Fixed Overhead = $8,000

Total Cost of Production = $22,300

To calculate the cost per unit, we divide the total cost of production by the number of units produced:

Cost per unit = $22,300 ÷ 2,200 units = $10.14

Now, we can calculate the value of ending inventory using absorption costing:

Ending Inventory = (800 units x $10.14 per unit) - (800 units x $7.50 per unit)
Ending Inventory = $8,112 - $6,000
Ending Inventory = $2,112

However, we need to remember that only 400 units were in ending inventory. So, we need to divide the total value of ending inventory by the number of units in ending inventory:

Ending Inventory per unit = $2,112 ÷ 400 units
Ending Inventory per unit = $5.28 per unit

Therefore, the ending inventory would be valued at $5.28 per unit x 800 units = $4,224.

But we need to subtract the cost of goods sold (1,800 units x $10.14 per unit) from the total value of ending inventory:

$4,224 - $18,252 = -$14,028

Since the ending inventory value is negative, the correct answer is A) $0.

Brown Corporation Produced 2,200 Units During the Most Recent Period