During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $7 per unit, Direct labor, $5 per unit, Variable overhead, $6 per unit, and Fixed overhead, $350,000. The company produced 35,000 units, and sold 28,000 units, leaving 7,000 units in inventory at year-end. What is the value of ending inventory under absorption costing

$196,000

Explanation:

Given that,

Direct materials, = $7 per unit,

Direct labor, = $5 per unit,

Variable overhead, = $6 per unit

Fixed overhead = $350,000

Total variable cost per unit:

= Direct Material per unit cost + Direct Labor per unit cost + Variable Overhead per unit cost

= $7 + $5 + $6

= $18

Fixed cost overhead rate per unit:

= Fixed overhead ÷ Units produced

= $350,000 ÷ 35,000

= $10

Cost per unit as per Absorption costing:

= Fixed cost overhead rate per unit + Total variable cost per unit

= $10 + $18

= $28

Value of Ending Inventory:

= units in inventory at year-end × Cost per unit

= 7,000 × $28

= $196,000

the correct answer is b.)