Question

10./For 2018, Baggy Green Caps Inc., had sales of 75 000 units and production of 100 000 units. Other information for the year included: Direct manufacturing labour Variable manufacturing overhead Direct materials 150 000 Variable selling expenses Fixed administrative expenses Fixed manufacturing overhead $187 500 100 000 100 000 not inventorichte 100 000 200 000 ! There was no beginning inventory. Required: a Compute the ending finished goods inventory under both absorption and variable costing b. Compute the cost of goods sold under both absorption and variable costing,

Answer 1

Ans
a.	Ending Finished goods Inventory
	Production Units	1,00,000
	Units Sold	75,000
	Ending Inventory Units	25,000
	Variable Costing
	Direct manuf. Labour	$        1,87,500
	Variable Manu overhead	$        1,00,000
	Direct material	$        1,50,000
	Total Variable cost (a)	$        4,37,500
	Total Units produced (b)	1,00,000
	Variable cost per unit (a/b)	$                4.38
	Variable cost of ending inventory	$        1,09,375
	($ 4.38 * 25000 units)
	Absorption Costing
	Total Variable cost (a)	$        4,37,500
	Add: Fixed Manufacturing overhead '(C)	$        2,00,000
	Total cost (d)   (a+c)	$        6,37,500
	Total Units produced (b)	1,00,000
	Absorption cost per unit (e) (d/b)	$                6.38
	Absorption cost of ending inventory	$        1,59,375
	($ 6.38 * 25000 units)
b.	Cost of goods sold
	Under Absorption Costing
	Absorption cost per unit (e)	$                6.38
	Units sold (f)	75000
	Total cost before admin & selling exp (g)   (e*f)	$ 4,78,125.00
	Add:
	Variable selling Exp	$ 1,00,000.00
	Fixed Admin Exp	$ 1,00,000.00
	Total cost of Goods sold under absorption costing	$ 6,78,125.00
	Under Variable Costing
	Variable cost per unit (as per above)	$                4.38
	Units sold (f)	75000
	Total cost before admin & selling exp	$ 3,28,125.00
	Add:
	Variable selling Exp	$ 1,00,000.00
	Fixed Admin Exp	$ 1,00,000.00
	Total cost of Goods sold under variable costing	$ 5,28,125.00