Inventory Valuation under Absorption Costing

During the most recent year, Judson Company had the following data associated with the product it makes:

Units in beginning inventory 300

Units produced 15,000

Units sold ($300 per unit) 12,700

Variable costs per unit:

Direct materials $20

Direct labor $60

Variable overhead $13

Fixed costs:

Fixed overhead per unit produced $30

Fixed selling and administrative $140,000

Required:

1. How many units are in ending inventory?

2. Using absorption costing, calculate the per-unit product cost.

3. What is the value of ending inventory under absorption costing?

1. There are 2,600 units in ending inventory.

2. Costs per unit under absorption costing $ 123

3. Value of ending inventory $ 319,800

Explanation:

Calculation of Ending inventory units.

Ending Inventory Units : Opening Units + Units produced - units sold

300 + 15,000 - 12700 = 2,600 units

Calculation of per unit cost under absorption costing

Under absorption costing, direct manufacturing costs as well as indirect factory overheads are considered.

Per units costs

Direct Materials $ 20

Direct Labour $ 60

Variable overhead $ 13

Fixed Overhead $ 30

Total costs per unit $ 123 under absorption costing

Calculation of ending inventory under absorption costing

The ending inventory calculated earlier of 2.600 units is multiplied by the per unit costs of $ 123 per unit to get the value of the ending inventory

$123 * 2600 units = $ 319,800