The following data pertain to one month's operations of Whitney, Inc.:

Units in beginning inventory
0

Units produced
11,000

Units sold
8,500

Variable costs per unit:

Manufacturing
$12

Selling and administrative
$6

Fixed costs in total

Manufacturing
$21,000

Selling and administrative
$27,000

What was the carrying value on the balance sheet of the ending finished goods inventory under absorption costing? (Do not round intermediate calculations and round your final answer to the nearest whole dollar).

Question

The following data pertain to one month's operations of Whitney, Inc.:

Units in beginning inventory
0

Units produced
11,000

Units sold
8,500

Variable costs per unit:

Manufacturing
$12

Selling and administrative
$6

Fixed costs in total

Manufacturing
$21,000

Selling and administrative
$27,000

What was the carrying value on the balance sheet of the ending finished goods inventory under absorption costing? (Do not round intermediate calculations and round your final answer to the nearest whole dollar).

BlackTom AI · Accepted Answer

We start by organizing the given data and identifying what needs to be computed under absorption costing.

First, determine how many units are in ending finished goods inventory. Beginning finished goods is 0 units, production is 11,000 units, and units sold are 8,500. Ending finished goods = 11,000 - 8,500 = 2,500 units.

Under absorption costing, each unit manufactured includes both variable manufacturing costs and a portion of fixed manufacturing costs. The variable manufacturing cost per unit is given as $12. The total fixed manufacturing costs are $21,000, and these must be allocated across the units produced (not across units sold).

Next, compute the fixed manufacturing cost per unit: fixed cost per unit = $21,000 / 11,000 units = $1.909090...

Now, determine the unit product cost under absorption costing: unit cost = variable manufacturing cost per unit + fixed manufacturing cost per unit = $12 + $1.909090... ≈ $13.909090...

With 2,500 units in ending finished goods, carrying value = 2,500 × $13.909090... ≈ $34,772.727...

Rounding to the nearest dollar yields $34,773.

Option-by-option assessment:
- Option $46,211: This would overstate the ending FG value, perhaps by using an incorrect allocation base (e.g., applying fixed costs to ending FG without considering number of units produced) or miscomputing the per-unit fixed cost. Since fixed costs must be allocated over produced units, a higher figure indicates misapportionment of fixed costs.
- Option $21,000: This equals the total fixed manufacturing costs alone and ignores the variable manufacturing costs and the allocation of fixed costs to the ending finished goods inventory. It represents only a portion of the carrying value and is therefore incorrect.
- Option $10,000: This value is not aligned with the math above; it could arise from miscounting units or misallocating costs (e.g., using only part of fixed costs or a rounded per-unit cost that leads to a much smaller ending value).
- Option $34,773: This aligns with the correct calculation: 2,500 ending units × ($12 variable + $1.909 per unit fixed) ≈ 2,500 × $13.909 ≈ $34,773. The value reflects both variable and fixed manufacturing costs allocated to the units in ending inventory.

In summary, the correct reasoning leads to an ending finished goods carrying value of about $34,773 under absorption costing, derived from 2,500 units × (variable cost $12 + fixed cost per unit $1.909).

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