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Ending finished goods inventory and operating income

J&G Enterprises the following information related to the current years operations

Units produced 75,000
Standard production volume (units) 75,000
Units sold 50,000
Selling price per unit $95.00
Units in beginning inventory 0
Direct materials used $450,000
Direct labor $1,125,000
Manufacturing overhead:
Variable 900,000
Fixed 750,000
Selling and administrative expenses:
Variable 800,000
Fixed 300,000

6. Assuming that J&G uses absorption costing, what is the ending finished goods inventory?
a. $1,075,000
b. $1,175,000
c. $1,375,000
d. $1,575,000
e. $1,875,000

7. Assuming now that J&G uses direct (variable) costing, what is the operating income?
a. $1,000,000
b. $1,250,000
c. $1,500,000
d. $1,800,000
e. $2,300,000

Solution Preview

6. In absorption costing all manufacturing costs are a part of inventory. Total manufacturing cost is 450,000+1,125,000+900,000+750,000= 3,225,000
Cost per ...

Solution Summary

The solution explains how to calculate the ending finished goods inventory and operating income