Use the following information for items
Obama Company sells its product for $25 per unit.During 2020, it produced 20,000 units and sold 15,000 units (there was no beginning inventory).Costs per unit are: direct materials $5, direct labour $4, and variable overhead $3.Fixed costs are: $300,000 manufacturing overhead, and $50,000 selling and administrative expenses.
-Ending inventory under variable costing is
A)$60,000.
B)$240,000.
C)$360,000.
D)$410,000.

Question

Use the following information for items 
Obama Company sells its product for $25 per unit.During 2020, it produced 20,000 units and sold 15,000 units (there was no beginning inventory).Costs per unit are: direct materials $5, direct labour $4, and variable overhead $3.Fixed costs are: $300,000 manufacturing overhead, and $50,000 selling and administrative expenses.
-Ending inventory under variable costing is
A)$60,000.
B)$240,000.
C)$360,000.
D)$410,000.

Quizplus · Accepted Answer

Under variable costing, only variable manufacturing costs are included in the cost of goods sold. Fixed manufacturing overhead and selling and administrative expenses are treated as period expenses and are deducted from total revenue to arrive at net income.

Calculation of cost of goods sold:
Direct materials per unit = $5 
Direct labor per unit = $4 
Variable overhead per unit = $3 
Total variable cost per unit = $12 
Cost of goods sold = 15,000 units x $12 per unit = $180,000

Calculation of ending inventory:
Ending inventory = (20,000 units produced - 15,000 units sold) x $12 per unit = $60,000

Therefore, the ending inventory under variable costing is $60,000.

Use the Following Information for Items