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

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

Variable costs per unit:

Direct materials

Direct labor $ $12$

Variable manufacturing overhead $$8$

Variable selling and administrative expenses $$4$

Fixed costs per year:

$$7$

Fixed manufacturing overhead

$$116,000$

Fixed selling and administrative expenses $$116,000$

$$280,000$

During this year, $29,000$ units were produced and $25,000$ units were sold. The Finished Goods inventory account at the end of this year shows a balance of $$96,000$ for the $4,000$ 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 that the company is using variable costing or absorption costing to assign costs to the $4,000$ units in its Finished Goods inventory?

$2.$ Assume that the company wishes to prepare this year's financial statements for its stockholders.

a$.$ Is Finished Goods inventory of $$96,000$ 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.

Req$2A$

Req $2$B

Calculate this year's ending balance in Finished Goods inventory two ways$-$using variable costing and using absorption costing. $($Round intermediate calculation to the nearest dollar amount.$)$

Ending Balance in

Finished Goods

Variable costing

Absorotion costing