Question

Mobile, Inc., manufactured 700 units of Product A, a new product, during the year. Product A's variable and fixed manufacturing costs per unit were $5.00 and $2.00, respectively. The inventory of Product A on December 31 of the year consisted of 100 units. There was no inventory of Product A on January 1 of the year. What would be the change in the dollar amount of inventory on December 31 if the cariable costing method was used instead of the absorption costing method?

Answer 1

Answer:

The change in the dollar amount of inventory is $200 due to change in the inventory costing method.

Explanation:

The variable cost per unit is $5.00 while fixed cost per unit is $2.00.

Cariable cost Per Unit is = $5.00

Absorption cost Per unit is = $7.00

Total cost under absorption costing = Absorption cost Per Unit x Number of Units in Ending inventory

Total absorption cost = $7.00 x 100 = $700

Total cost under Variable cost = Variable cost Per unit x Number of units in Ending inventory

Total Variable cost = $5.00 x 100 = $500

Change in Cost = Total Absorption cost - Total Variable cost

Change in cost = $700 - $500 = $200

The difference between the Absorption costing and Variable costing gives the value of change in the inventory due to change in inventory costing method. Therefore, The value of inventory is $2.00 x 100 = $200.

Answer 2

Answer:

The change in dollar amount of inventory is $200 due to change in inventory costing method