During its first year of operations, the mccormick company incurred the following manufacturing costs: direct materials, $5 per unit, direct labor, $3 per unit, variable overhead, $4 per unit, and fixed overhead, $250,000. the company produced 25,000 units, and sold 20,000 units, leaving 5,000 units in inventory at year-end. what is the value of ending inventory under absorption costing

Value of closing inventory under absorption costing = $110,000

Explanation:

Total cost of manufacturing = Variable + Fixed

Variable = Material + Labor + Overhead = $5 + $3 + $4 = $12

Fixed = Overhead = $250,000

Total expenses $12 25,000 = $300,000

Add: Fixed Overheads = $250,000

Total cost for 25,000 units = $550,000

Cost per unit = $550,000/25,000 = $22

Value of closing inventory = $22 5,000 = $110,000

Final Answer

Value of closing inventory under absorption costing = $110,000

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