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?

A) $60,000
B) $110,000
C) $50,000
D) $250,000
E) $310,000

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Lynnette Gomez · Accepted Answer

Final Answer : B, Explanation :  Under absorption costing, the value of ending inventory includes all manufacturing costs (direct materials, direct labor, variable overhead, and allocated fixed overhead). The cost per unit is calculated as follows: Direct materials ($5) + Direct labor ($3) + Variable overhead ($4) + Fixed overhead per unit ($250,000 / 25,000 units = $10) = $22 per unit. The value of ending inventory (5,000 units) is 5,000 units * $22 = $110,000.

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