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Sprinkle Co. sells its product for $60 per unit. During 2016, 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.
-Ending inventory under variable costing is
A)$270,000.
B)$390,000.
C)$600,000.
D)$1,350,000.

Question

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Sprinkle Co. sells its product for $60 per unit. During 2016, 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.
-Ending inventory under variable costing is
A)$270,000.
B)$390,000.
C)$600,000.
D)$1,350,000.

Quizplus · Accepted Answer

Under variable costing, only variable manufacturing costs are included in the cost of goods sold. The fixed costs are treated as period costs and are expensed in the period incurred. 
Total variable cost per unit = $15 + $9 + $3 = $27
Therefore, cost of goods sold = 50,000 units x $27 = $1,350,000
Ending inventory = (60,000 - 50,000) units x $27 = $270,000.

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