Cinnabar, Inc Requirements:
A) Compute Cinnabar's Unit Product Cost Under Absorption Costing

question 106

Essay

Cinnabar, Inc. has provided the following data for the year:
$$\begin{array} { | l | r | l | } \hline \text { Direct materials } & \$ 10 & \text { per unit } \\\hline \text { Direct labor } & \$ 15 & \text { per unit } \\\hline \text { Variable manufacturing overhead } & \$ 20 & \text { per unit } \\\hline \text { Fixed manufacturing overhead } & \$ 25,000 & \text { per year } \\\hline \text { Fixed selling and administrative costs } & \$ 15,000 & \text { per year } \\\hline \text { Sales price } & \$ 75 & \text { per unit } \\\hline \text { Beginning Finished Goods Inventory } & 500 & \text { units } \\\hline \text { Units produced } & 5,000 & \text { units } \\\hline \text { Units sold } & 4,500 & \text { units } \\\hline\end{array}$$ Requirements:
a) Compute Cinnabar's unit product cost under absorption costing and variable costing.
b) Prepare income statements for Cinnabar using absorption costing and variable costing.
c) Calculate the balance in Finished Goods Inventory using absorption costing and variable costing.
Assume that the production level, costs, and sales prices were the same in the previous year.

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Definitions:

Great Depression

A severe worldwide economic downturn during the 1930s, marked by prolonged unemployment, deflation, and significant declines in economic activity.

Economic Principle

Fundamental concepts that underpin the study and practice of economics, such as supply and demand or the cost-benefit analysis.

Productive Capacity

The maximum output a firm or economy can produce with its current level of resources and technology.

Efficient

The optimal use of resources to achieve the best possible outcome or output with minimal waste or effort.