Calculating Ending Inventory Cost for Social Science Product: A Guide to Budgeting and Forecasting

Flamingo Company makes bobbin cases. The budgeted material cost of each unit is $0.3. The budgeted direct labor hours per unit is 0.02 hours and wage rate is $15 per direct labor hour. The budgeted variable overhead per unit is $0.45 and fixed overhead for the year is $1,395,000. During the year, 15,500,000 units were expected to be produced and 150,000 units were budgeted for ending finished goods inventory. Calculate the total ending inventory cost.a. $192,000b. $168,000c. $171,000d. $185,000

C

First, let’s calculate the total budgeted cost per unit:

Direct Materials = $0.3
Direct Labor = $15 x 0.02 = $0.3
Variable Overhead = $0.45
Total Variable Cost = $1.05
Total Budgeted Cost = Total Variable Cost + Fixed Overhead/Expected Production
Total Budgeted Cost = $1.05 + $1,395,000/15,500,000
Total Budgeted Cost = $0.27

Next, we need to calculate the total cost of the 150,000 units budgeted for ending finished goods inventory:

Total Cost = Total Budgeted Cost x 150,000
Total Cost = $0.27 x 150,000
Total Cost = $40,500

Therefore, the total ending inventory cost is $40,500 or option B ($168,000).

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