Question

Refer to the information in Exercise 19-1. Assume instead that Trio Company uses variable costing.

1. Compute the product cost per unit using variable costing.

2. Determine the cost of ending finished goods inventory using variable costing.

3. Determine the cost of goods sold using variable costing.

Short answer

Variable cost per unit is $35.

Cost of ending finished inventory is $210,000.

Cost of goods sold is$490,000.

Step-by-step solution

Meaning of Variable Costing

Variable costing is one of the methods used in the cost accounting branch to determine the price of a product produced. It only considers thevariable expenses associated with the production of a product.

Computation of cost per unit

Particulars	Amounts ($)
Direct materials per unit	15
Direct labor per unit	16
Variable overhead per unit (80000/20000)	4
Variable cost per unit	$35

Computation of cost of ending finished inventory

$\begin{array}{rcl}\mathrm{Cost}\mathrm{of}\mathrm{ending}\mathrm{finished}\mathrm{inventory}& =& \mathrm{Number}\mathrm{of}\mathrm{units}\mathrm{in}\mathrm{ending}\mathrm{inventory}\times \mathrm{Cost}\mathrm{per}\mathrm{unit}\\ & =& 6,000\times \$35\\ & =& \$210,000\end{array}$

Computation of cost of goods sold

$\begin{array}{rcl}\mathrm{Cost}\mathrm{of}\mathrm{goods}\mathrm{sold}& =& \mathrm{Number}\mathrm{of}\mathrm{units}\mathrm{sold}\times \mathrm{Cost}\mathrm{per}\mathrm{unit}\\ & =& 14,000\times \$35\\ & =& \$490,000\end{array}$