The Southern Corporation manufactures a single product and has the following cost structure:
Last year, 7,000 units were produced and 6,800 units were sold. There was no beginning inventory.
-The carrying value on the balance sheet of the ending inventory of finished goods under variable costing would be:
A) the same as absorption costing.
B) $6,800 greater than under absorption costing.
C) $6,800 less than under absorption costing.
D) $4,000 less than under absorption costing.

Question

The Southern Corporation manufactures a single product and has the following cost structure:
  Last year, 7,000 units were produced and 6,800 units were sold. There was no beginning inventory.
-The carrying value on the balance sheet of the ending inventory of finished goods under variable costing would be:
A) the same as absorption costing. 
B) $6,800 greater than under absorption costing. 
C) $6,800 less than under absorption costing. 
D) $4,000 less than under absorption costing.

Quizplus · Accepted Answer

Fixed manufacturing overhead per unit = Fixed manufacturing overhead ÷ Units produced
= $140,000 ÷ 7,000 units = $20 per unit
Units in ending inventory = Units in beginning inventory + Units produced - Units sold
= 0 units + 7,000 units - 6,800 units = 200 units
Manufacturing overhead deferred in (released from) inventory = Fixed manufacturing overhead in ending inventory - Fixed manufacturing overhead in beginning inventory = ($20 per unit × 200 unit) - $0 = $4,000
Therefore, inventory will be $4,000 less under variable costing than under absorption costing.

The Southern Corporation Manufactures a Single Product and Has the Following