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The absorption costing ending inventory is, $55,000.
- For computing ending inventory under absorption costing, we need to first find out the units of ending inventory, and then do the proportion to each cost.
What is inventory absorption costing?
- Direct material, direct labor, and all overhead are all included in the value of inventory under absorption costing.
- The distinction between the two approaches is that management will favor one approach over the other when making internal decisions.
How do you find ending inventory using absorption costing?
- To the cost of purchases made during the period, add the cost of establishing inventory.
- This is the price of the products that are on sale.
- Calculate the anticipated cost of products sold by multiplying the gross profit margin by sales.
- To determine the ending inventory, deduct the cost of the items that can be sold from the cost of the items that were actually sold.
According to the question:
The units of ending inventory = Units produced - units sold.
= 5,200 units - 4,200 units.
= 1,000 units.
Now,
The material cost = Material cost × (ending inventory units ÷ units produced).
= $104,000 × (1,000 ÷ 5,200).
= $20,000.
The Variable conversion cost = Variable conversion cost × (ending inventory units ÷ units produced).
= $52,000 × (1,000 ÷ 5,200).
= $10,000.
The Fixed manufacturing cost = Fixed manufacturing cost × (ending inventory units ÷ units produced).
= $130,000 × (1,000 ÷ 5,200 ).
= $25,000.
So, the ending inventory = Material cost + Variable conversion cost + Fixed manufacturing cost.
= $20,000+ $10,000 + $25,000.
= $55,000.
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