During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per unit, Direct labor, $3 per unit, Variable overhead, $4 per unit, and Fixed overhead, $250,000. The company produced 25,000 units, and sold 20,000 units, leaving 5,000 units in inventory at year-end. What is the value of ending inventory under variable costing?
A) $60,000
B) $110,000
C) $50,000
D) $250,000

Question

Quizplus · Accepted Answer

Variable costing includes only variable manufacturing costs in the value of inventory. In this case, the variable manufacturing costs are direct materials, direct labor, and variable overhead. The total variable manufacturing cost per unit is $5 + $3 + $4 = $12. The value of ending inventory under variable costing is 5,000 units * $12 = $60,000.

During Its First Year of Operations, the McCormick Company Incurred