Question

During the most recent year, Bledsoe Corp. had the following data:

Beginning inventory in units	-
Units produced	14,500
Units sold ($120 per unit)	8,200
Variable costs per unit:
Direct materials	$ 13
Direct labor	$ 16
Variable overhead	$8
Fixed costs:
Fixed overhead per unit produced	$ 23
Fixed selling and administrative	$ 135,000

Required:

A. How many units are in ending inventory?
B. Using absorption costing, calculate the per-unit product cost. What is the value of ending inventory? C. Using variable costing, calculate the per-unit product cost. What is the value of ending inventory?
D. Prepare an income statement using absorption costing.
E. Prepare an income statement using variable costing.

Answer 1

Answer-A)- Ending inventory in units = Units produced- Units sold

= 14500 units-8200 units

= 6300 units

B)- Unit product cost under Absorption costing= $60 per unit.

Value of ending inventory = Ending inventory* Unit product cost

= 6300 units*$60 per unit

= $378000

Explanation- Unit product cost under Absorption costing:-Direct materials + Direct Labor+ Variable manufacturing overhead + fixed manufacturing overhead

=$13+$16+$8+$23

= $60 per unit

C)- Unit product cost under Variable costing= $37 per unit.

Explanation-Unit product cost under Variable costing:-Direct materials + Direct Labor+ Variable manufacturing overhead

=$13+$16+$8

= $37 per unit

Value of ending inventory = Ending inventory* Unit product cost

= 6300 units*$37 per unit

= $233100

D)-

BLEDSOE CORP.
Income statement (Using absorption costing approach)
Particulars			Amount
			$
Sales (a)	8200 units*$120 per unit		984000
Less:- Cost of goods sold (b)
Opening inventory
Add:- Cost of goods manufactured		536500
Direct materials	14500 units*$13 per unit	188500
Direct labor	14500 units*$16 per unit	232000
Variable manufacturing overhead	14500 units*$8 per unit	116000
Fixed Manufacturing overhead		333500
Cost of goods available for sale		870000
Less:- Closing inventory	6300 units*$60 per unit	378000	492000
Gross margin C= a-b			492000
Less:- Fixed costs
Selling & administrative exp.			135000
Net Income			357000

D)-

BLEDSOE CORP.
Income statement (Using variable costing approach)
Particulars			Amount
			$
Sales (a)	8200 units*$120 per unit		984000
Less:- Variable cost of goods sold (b)
Opening inventory		NIL
Add:- Variable cost of goods manufactured		536500
Direct materials	14500 units*$13 per unit	188500
Direct labor	14500 units*$16 per unit	232000
Variable manufacturing overhead	14500 units*$8 per unit	116000
Variable cost of goods available for sale		536500
Less:- Closing inventory	6300 units*$37 per unit	233100	303400
Gross contribution margin C= a-b			680600
Less:- Fixed costs
Manufacturing overhead	14500 units*$23 per unit		333500
Selling & administrative exp.			135000
Net Income			212100