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Jones Company incurred the following costs while producing 100 chairs: Units produced 100 chairs Direct materials $10 per unit Direct labor 15 per unit Variable manufacturing overhead 3 per unit Total fixed manufacturing overhead 2,000 Variable selling and administrative 4 per unit Fixed selling and administrative 3,000 What is the ending balance in Finished Goods Inventory using variable costing if 75 units are sold (assume no beginning inventory in Finished Goods Inventory)?

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Answer:

The answer is: The ending balance in Finished Goods Inventory is $1,200

Explanation:

First we have to calculate the cost per chair produced, to do this we will find the total cost and divide by the number of chairs produced:

Units produced  100 chairs

  • Direct materials  $10 per unit  x 100 = $1,000
  • Direct labor  15  per unit  x 100 = $1,500
  • Variable manufacturing overhead 3 per unit x 100 = $300
  • Total fixed manufacturing overhead  $2,000

Total costs are $4,800 / 100 chairs = $48 per chair produced

There are 25 chairs left in finished goods inventory (FGI) = 100 - 75 = 25

The ending balance in FGI is = 25 chairs x $48 per chair = $1,200

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