Exercise $6-13($Algo$)$ Inferring Costing Method; Unit Product Cost $[$L$06-1]$

Sierra Company incurs the following costs to produce and sell its only product.

Variable costs per unit:

Direct materials $ $11$

Direct labor $$8$

Variable manufacturing overhead $$4$

Variable selling and administrative expenses $$7$

Fixed costs per year:

Fixed manufacturing overhead $$91,500$

Fixed selling and administrative expenses $$310,000$

During this year, $30,500$ units were produced and $24,500$ units were sold. The Finished Goods inventory account at the end of this

year shows a balance of $$138,000$ for the $6,000$ unsold units.

Required:

$1-$a$.$ Calculate this year's ending balance in Finished Goods inventory two ways$-$using variable costing and using absorption costing.

$1--$b$.$ Does it appear the company is using variable costing or absorption costing to assign costs to the $6,000$ units in its Finished Goods

inventory?

Assume the company wishes to prepare this year's financial statements for its stockholders.

a$.$ Is Finished Goods inventory of $$138,000$ the correct amount to include on the balance sheet for external reporting purposes?

b$.$ What balance should be reported in the Finished Goods inventory account for external reporting purposes?

Complete this question by entering your answers in the tabs below.