Trio Company reports the following information for the current year, which is its first year of operations. Direct materials $15 per unit
Direct labor $15 per unit
Overhead costs for the year
Variable overhead $3 per unit
Fixed overhead $120,000 per year
Units produced this year 20,000 units
Units sold this year 14,000 units
Ending finished goods inventory in
units 6,000 units
1. Compute the cost per unit using absorption costing and then using variable costing2. Determine the cost of ending finished goods inventory using absorption costing and then using variable costing3. Determine the cost of goods sold using variable costing and then using variable costing

Instructions are below.

Explanation:

Giving the following information:

Direct materials $15 per unit

Direct labor $15 per unit

Overhead costs for the year

Variable overhead $3 per unit

Fixed overhead $120,000 per year

Units produced this year 20,000 units

Units sold this year 14,000 units

Ending finished goods inventory in

units 6,000 units

The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.

The variable costing method incorporates all variable production costs (direct material, direct labor, and variable overhead).

1) Absorption costing method:

Unitary fixed overhead= 120,000/20,000= 6

Unit product cost= direct material + direct labor + total unitary overhead

Unit product cost= 15 + 15 + 3 + 6= 39

Variable costing:

Unit product cost= direct material + direct labor + variable overhead

Unit product cost= 33

2) Ending inventory:

Absorption costing= 6,000*39= $234,000

Variable costing= 6,000*33= $198,000

3) Cost of goods sold:

Absorption costing= 14,000*39= 546,000

Variable costing= 14,000*33= 462,000

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