Razor Corporation Produces and Sells a Single Product at $40

question 120

Essay

Razor Corporation produces and sells a single product at $40 per unit. During 2019, the company produced 200,000 units, 160,000 of which were sold during the year. All ending inventory was in finished goods inventory; there was no inventory on hand at the beginning of the year. The following data relate to the company's production process:
$$\begin{array} { l c } \text { Direct materials } & \$ 550,000 \\\text { Direct labor } & 400,000 \\\text { Variable Manufacturing overhead } & 100,000 \\\text { Fixed manufacturing overhead } & 300,000 \\\text { Variable marketing and administrative } & 160,000 \\\text { Fixed marketing and administrative } & 110,000\end{array}$$
Required:
Calculate the following.
(a) The unit cost of ending inventory on the balance sheet prepared for stockholders.
(b) The unit cost of ending inventory on a variable costing balance sheet.
(c) The operating income using absorption costing.
(d) The operating income using variable costing.
(e) The ending inventory using absorption costing.
(f) The ending inventory using variable costing.
(g) A reconciliation of the difference in operating income between absorption costing and variable costing using the shortcut method.

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Definitions:

Variable Inputs

Production factors that can be adjusted in the short term to change the level of output, such as labor and raw materials.

Short Run

A period of time in which at least one input in the production process is fixed, influencing decisions made by firms about production levels.

Plant Capacity

Plant capacity refers to the maximum output a manufacturing or production facility can achieve under normal conditions within a given time period.

Fixed Input

A resource or factor of production whose quantity remains constant regardless of the level of output or activity.