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A business operated at 100% of capacity during its first month and incurred the following costs: ...

Question:

A business operated at 100% of capacity during its first month and incurred the following costs:

Production costs (19,828 units):
Direct materials $ 174,349
Direct labor 236,436
Variable factory overhead 260,431
Fixed factory overhead 102,665 $773,881
Operating expenses:
Variable operating expenses $123,002
Fixed operating expenses 46,730 169,732

If 1,953 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable costing balance sheet?

Closing Stock:

Closing stock refers to the stock that remains after sales of goods in an accounting period. The closing stock of the current year is reflected on an organization's balance sheet and it becomes the opening stock for the next year.

Answer and Explanation:

Calculation of the amount of inventory through variable costing balance:

Particular per unit cost Amount
Direct material 8.79 174,349
Direct Labor 11.92 236,436
Variable factory overhead 13.13 260,431
Total 33.84 671,216
Number of units in ending inventory - 1,953
Cost of ending inventory - 66,090 (33.84 x 1,953)

The amount of inventory that would be reported on the variable costing balance sheet is $66,090.

Working Note:

Calculation for direct material per units cost:

{eq}\begin{align*} & =\dfrac{\text{Direct}\ \text{Material}}{\text{Production}\ \text{Cost}} \\ & =\dfrac{174349}{19828} \\ & =8.79 \end{align*} {/eq}

Calculation for direct labor per units cost:

{eq}\begin{align*} & =\dfrac{\text{Direct}\ \text{Labor}}{\text{Production}\ \text{Cost}} \\ & =\dfrac{236436}{19828} \\ & =11.92 \end{align*} {/eq}

Calculation for Variable factory overhead per units cost:

{eq}\begin{align*} & =\dfrac{\text{Variable}\ \text{Factory}\ \text{Overhead}}{\text{Production}\ \text{Cost}} \\ & =\dfrac{260431}{19828} \\ & =13.13 \end{align*} {/eq}


Learn more about this topic:

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Variable Costing: Method, Formula & Advantages

from Financial Accounting: Help and Review

Chapter 13 / Lesson 5
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