Last year, Silver Company's total variable production costs were $7,500, and its total fixed manufacturing overhead...
Last year, Silver Company's total variable production costs were $7,500, and its total fixed manufacturing overhead costs were $4,500. The company produced 3,000 units during the year and sold 2,400 units. There were no units in the beginning inventory. Which of the following statements is true?
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Under variable costing, the average cost of the units in the ending inventory will be $4 each.
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The operating income under absorption costing for the year will be $900 lower than the operating income under variable costing.
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The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing.
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Under absorption costing, the average cost of the units in ending inventory will be $2.50 each.
Homework Answers
Answer :
C) The Ending inventory under Variable costing will be $900 Lower than the Ending inventory under Absorption costing
Variable costing
Unit Cost under Variable costing = 7,500/2,400 = 3.125
Ending Units = 3000-2400 =600
Ending inventory = 3.125*600 =1,875
Absorption Costing
Units cost Under Absorption Costing = 3.125+(4500/3000) =4.625
Ending invenotry = 4.625*600 = 2,775
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