Silver Corporation produces a single product. Last year, the company's variable production costs totaled $7,500 and its fixed manufacturing overhead costs totaled $4,500. The company produced 3,000 units during the year and sold 2,400 units. There were no units in the beginning inventory. Which of the following statements is true?

A) Under variable costing, the units in the ending inventory will be costed at $4.00 each.
B) The net operating income under absorption costing for the year will be $900 lower than the net operating income under variable costing.
C) The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing.
D) Under absorption costing, the units in ending inventory will be costed at $2.50 each.

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Dinah Gaspard · Accepted Answer

Final Answer : C, Explanation :  Under variable costing, only variable costs are included in inventory costs. Fixed manufacturing overhead costs are expensed in the period they are incurred. Therefore, the ending inventory under variable costing will only include the variable production costs, making it $900 lower than under absorption costing, which includes both variable and fixed manufacturing overhead costs in the cost of inventory.

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