Costing Methods and Inventory Valuation The following information is available f
ID: 2581699 • Letter: C
Question
Costing Methods and Inventory Valuation
The following information is available for Keller Corporation's new product line:
There was no inventory at the beginning of the year. During the year 12,500 units were produced and 10,000 units were sold.
Required:
(a) Determine the cost of ending inventory, assuming Keller uses variable costing.
(b) Determine the cost of ending inventory, assuming Keller uses absorpion costing.
A step by step on how to calculate cost of ending inventory and the differences between the two methods would be super appreciated!
Selling price per unit $15 Variable manufacturing costs per unit of production $8 Total annual fixed manufacturing costs $25,000 Variable administrative costs per unit of production $3 Total annual fixed selling and administrative expenses $15,000Explanation / Answer
1) Determine the cost of ending inventory, assuming Keller uses variable costing
Solution: 20,000
Working: Ending inventory in units = 12,500 units – 10,000 units = 2500 units
Cost of the ending inventory = 2,500 * $8 = 20,000
2) Determine the cost of ending inventory, assuming Keller uses absorpion costing
Solution: $25,000
Working: Ending inventory in units = 12,500 units – 10,000 units = 2500 units
Unit fixed overhead = 25,000 / 12,500 units = $2.00
Total unit inventoriable cost = 8.00 + 2.00 = $10
Cost of the ending inventory under the absorption costing method = 2,500 units * 10 = 25,000