Rickman,Inc.reports the following information: $$\begin{array} { | l | r |r| }
\hline \text { Units produced } & 590& \text { units } \
\hline \text { Units sold } & 490& \text { units } \
\hline \text { Sales price } & \$ 120& \text { per unit } \
\hline \text { Direct materials } & \$ 26 &\text { per unit } \
\hline \text { Direct labor } & \$ 9& \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 14& \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 16,500& \text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 6 &\text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 12,200 &\text { per year } \
\hline
\end{array}$$ There are no beginning inventories.What is the ending balance in Finished Goods Inventory using variable costing?
A)$4,900
B)$3,500
C)$5,500
D)$7,697

Question

Rickman,Inc.reports the following information: $$\begin{array} { | l | r |r| } 
\hline \text { Units produced } & 590& \text { units } \
\hline \text { Units sold } & 490& \text { units } \
\hline \text { Sales price } & \$ 120& \text { per unit } \
\hline \text { Direct materials } & \$ 26 &\text { per unit } \
\hline \text { Direct labor } & \$ 9& \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 14& \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 16,500& \text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 6 &\text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 12,200 &\text { per year } \
\hline
\end{array}$$ There are no beginning inventories.What is the ending balance in Finished Goods Inventory using variable costing?
A)$4,900
B)$3,500
C)$5,500
D)$7,697

Quizplus · Accepted Answer

Variable costing only considers variable manufacturing costs in the cost of goods sold and ending inventory. In this case, the variable manufacturing costs are direct materials, direct labor, and variable manufacturing overhead. The total variable manufacturing cost per unit is $26 + $9 + $14 = $49. The ending balance in Finished Goods Inventory is equal to the number of units in ending inventory multiplied by the variable manufacturing cost per unit. The number of units in ending inventory is 590 units - 490 units = 100 units. Therefore, the ending balance in Finished Goods Inventory is 100 units x $49 = $4,900.

Rickman,Inc There Are No Beginning Inventories