Gordon Company produces a single product that sells for $10 per unit. Last year, there were no beginning inventories, 100,000 units were produced, and 80,000 units were sold. The company has the following cost structure:
$\begin{array} { | l | r | r | }
\hline & \text { Fixed Costs } & \text { Variable Costs } \
\hline \text { Raw materials } & - - & \$ 2.00 \text { per unit produced } \
\hline \text { Direct labour } & - - & 1.25 \text { per unit produced } \
\hline \text { Factory overhead } & \$ 120,000 & 0.75 \text { per unit produced } \
\hline \text { Selling and administrative } & 70,000 & 1.00 \text { per unit sold } \
\hline
\end{array}$

-Under absorption costing,what was the carrying value on the balance sheet of the ending finished goods inventory? Do not round intermediate calculations.
A) $80,000.
B) $104,000.
C) $110,000.
D) $200,000.

Question

Gordon Company produces a single product that sells for $10 per unit. Last year, there were no beginning inventories, 100,000 units were produced, and 80,000 units were sold. The company has the following cost structure:
$\begin{array} { | l | r | r | } 
\hline & \text { Fixed Costs } & \text { Variable Costs } \
\hline \text { Raw materials } & - - & \$ 2.00 \text { per unit produced } \
\hline \text { Direct labour } & - - & 1.25 \text { per unit produced } \
\hline \text { Factory overhead } & \$ 120,000 & 0.75 \text { per unit produced } \
\hline \text { Selling and administrative } & 70,000 & 1.00 \text { per unit sold } \
\hline
\end{array}$

-Under absorption costing,what was the carrying value on the balance sheet of the ending finished goods inventory? Do not round intermediate calculations.
A) $80,000.
B) $104,000.
C) $110,000.
D) $200,000.

Quizplus · Accepted Answer

Under absorption costing, all manufacturing costs (both variable and fixed) are assigned to the product. The cost per unit is calculated as follows: Variable costs (raw materials $2.00 + direct labor $1.25 + factory overhead $0.75) = $4.00 per unit. Fixed factory overhead is $120,000 for 100,000 units produced, so the fixed cost per unit is $120,000 / 100,000 = $1.20. Total cost per unit = $4.00 (variable) + $1.20 (fixed) = $5.20. Ending inventory = 100,000 units produced - 80,000 units sold = 20,000 units. The carrying value of ending inventory = 20,000 units * $5.20 per unit = $104,000.

Gordon Company Produces a Single Product That Sells for $10