Question

Sierra Company incurs the following costs to produce and sell a single product. Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative expenses Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses EA GA GA GA $ 121,000 $ 305,000 During the last year, 30,250 units were produced and 24,500 units were sold. The Finished Goods inventory account at the end of the year shows a balance of $109,250 for the 5,750 unsold units. Required: 1. Determine whether the company is using absorption costing or variable costing to cost units in the Finished Goods inventory account. a. Calculate the ending balance in the Finished Goods inventory account under variable costing and absorption costing.. Ending Balance in Finished Goods Variable costing Absorption costing b. Which costing method is the company using to cost units in the Finished Goods inventory account? Absorption costing Variable costing 2. Assume that the company wishes to prepare financial statements for the year to issue to its stockholders. a. Is the $109,250 figure for Finished Goods inventory the correct amount to use on these statements for external reporting purposes? Yes, because variable costing is generally accepted for external reporting. No, because variable costing is not generally accepted for external reporting. Yes, because absorption costing is generally accepted for external reporting. No, because absorption costing is not generally accepted for external reporting. b. At what dollar amount should the 5,750 units be carried in the inventory for external reporting purposes? Finished goods inventory balance for external reporting purposes This is a numeric cell, so please

Answer 1

	unit product cost
				Absorption		variable
	Direct materials			10		10
	direct labor			6		6
	VMOH			3		3
	FMOH	(121000/30250)		4
	unit product cost			23		19
1a)			Ending bal
			in finished goods
	Variable costing		109250		(5750*19)
	Absorption costing		132250		(5750*23)
b)	Variable costing
2)
a)	No,because variable costing is not generally accepted fpr
	external reporting
b)	Finished goods inventory balance for external					132250
	reporting purposes