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A manufacturer reports the following costs to produce 10,000 units in its first year of operations: Direct materials, $10 per unit, Direct labor, $6 per unit, Variable overhead, $70,000, and Fixed overhead, $120,000. Of the 10,000 units produced, 9,200 were sold, and 800 remain in inventory at year-end. Under absorption costing, the value of the inventory is:

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Answer:

$28,000

Explanation:

The cost per unit, under absorption costing is given by the total producing cost divided by the number of units produced.

Cost = Units x (Direct materials + Direct labor) + Variable and Fixed overhead

[tex]Cost = 10,000*(\$6+\$10) +\$120,000+\$70,000\\Cost = \$350,000[/tex]

The cost per unit is:

[tex]C_u=\frac{\$350,000}{10,000}\\C_u = \$35[/tex]

The value of inventory is given by the remaining units in inventory multiplied by the cost per unit

[tex]I=800*\$35\\I=\$28,000[/tex]

The value of inventory, under absorption costing, is $28,000.

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