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:

Fair Market Value

An estimate of the price at which an asset or property would change hands between a willing buyer and seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.

Tax Standpoint

A perspective or consideration related to tax implications, obligations, or benefits in financial planning and decision making.

Net Assets

The difference between total assets and total liabilities, representing the owner's or shareholders' equity in a company.

Ownership

The legal right of possessing, using, and disposing of something, especially property or goods.