Consider a single product firm with the following LLAs, where q denotes units manufactured and selling and administrative is, of course,a period cost.
direct labor DL = 10q
direct material DM = 10q
overhead OV = 90, 000 + 2DL
selling and administrative SA = 120, 000
The product sells for 100 per unit. Initially no inventory is present. Production and sales quantities for five consecutive years are noted below. At no time is there any ending work-in-process inventory.
…………………prd 1 prd 2 prd 3 prd 4 prd 5
production………4,500 4,500 4,500 4,500 4,500
sales……………3,000 5,000 4,500 4,000 6,000
Assume the various LLAs are completely accurate. Determine the income and ending finished goods inventory for each period, using normal, full costing and using normal, variable costing. Assume a normal volume of q = 4,500 units.