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 absorption costing?
A)$60,000
B)$110,000
C)$50,000
D)$250,000
E)$310,000

Question

Quizplus · Accepted Answer

Under absorption costing, the value of ending inventory includes all manufacturing costs (direct materials, direct labor, variable overhead, and allocated fixed overhead). The cost per unit is calculated as follows: Direct materials ($5) + Direct labor ($3) + Variable overhead ($4) + Fixed overhead per unit ($250,000 / 25,000 units = $10) = $22 per unit. The value of ending inventory (5,000 units) is 5,000 units * $22 = $110,000.

During Its First Year of Operations,the McCormick Company Incurred the Following