A business operated at 100% of capacity during its first month and incurred the following costs: If 600 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the absorption costing balance sheet?
A) $24,300
B) $28,200
C) $22,800
D) $34,000

Question

A business operated at 100% of capacity during its first month and incurred the following costs:  If 600 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the absorption costing balance sheet?
A) $24,300 
B) $28,200 
C) $22,800 
D) $34,000

Quizplus · Accepted Answer

The amount of inventory on the absorption costing balance sheet is calculated as follows:

Beginning inventory + Cost of goods manufactured - Cost of goods sold = Ending inventory

Beginning inventory is not given in the problem, so we can assume it is zero.

Cost of goods manufactured can be calculated as:
Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead
= $20,000 + $15,000 + $9,000 + $18,000
= $62,000

Cost of goods sold can be calculated as:
Sales - Cost of goods manufactured
= $150,000 - $62,000
= $88,000

Ending inventory can be calculated as:
$0 + $62,000 - $88,000
= $24,000

However, we are told that 600 units remain unsold. We can assume that the cost per unit is constant, so we can divide the ending inventory by the number of units produced to get the cost per unit:
$24,000 / 10,000 units = $2.40 per unit

We can then multiply the cost per unit by the number of units remaining unsold to get the amount of inventory that would be reported on the absorption costing balance sheet:
$2.40 per unit x 600 units = $1,440
Therefore, the correct answer is C: $22,800.

A Business Operated at 100% of Capacity During Its First