Denver Corporation has the following sales forecast for the next quarter: July, 4,000 units; August, 4,800 units; September, 5,600 units
Sales totaled 3,200 units in June.The June ending finished goods inventory was 800 units.End-of-month finished goods inventory levels are planned to be equal to 30 percent of the next month's planned sales.Records showed that each unit is budgeted at 2 pounds of materials costing $3 per pound.Direct labor was budgeted at .5 direct labor hours per unit at a wage of $20 per hour.Budgeted variable overhead is $1.50 per direct labor hour.Fixed overhead is budgeted at $250,000 for the year, and 50,000 units are expected to be produced.
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After preparing a finished goods inventory budget for August, what is the total ending inventory cost?
A) $26,100 units.
B) $31,755 units.
C) $69,600 units.
D) $36,540 units.

Question

Quizplus · Accepted Answer

The ending inventory for August is 30% of September's sales, which is 1,680 units (30% of 5,600). The cost per unit is calculated as follows: Direct materials cost is $6 (2 pounds x $3), direct labor cost is $10 (0.5 hours x $20), variable overhead is $0.75 (0.5 hours x $1.50), and fixed overhead is $5 ($250,000/50,000 units). Total cost per unit is $21.75. Therefore, the total ending inventory cost is 1,680 units x $21.75 = $36,540.

Denver Corporation Has the Following Sales Forecast for the Next