Last year, 7,140 units were produced and 6,940 units were sold. there was no beginning inventory. the carrying value on the balance sheet of the ending inventory of finished goods under variable costing would be: a. $4,400 less than under absorption costing.
b. $6,940 less than under absorption costing.
c. $6,940 greater than under absorption costing.
d. the same as absorption costing.

$4,400 less than under absorption costing.

Explanation:

First the complete Question:

The Southern Corporation manufactures a single product and has the following cost structure:

Variable costs per unit:  

Production$35

Selling and administrative$17

Fixed costs per year:  

Production$157,080

Selling and administrative$128,810

Step 1: Calculate the Value of the Ending or Closing Inventory under variable costing

To do this subtract  the closing inventory form the produced units and multiply it by the production variable cost per unit

= (7,140 - 6,940) x $35 = $7,000

Step 2: Use Absorption Costing to determine the Product Cost

a. Determine Fixed Production Cost per Unit

Fixed Cost/ total units produced

= $157,080 /7140 = $22

b. Calculate total cost per unit by adding the variable Production cost to the determined fixed production cost per unit

= $35 + $22 =  $57

Step 3: Determine Closing Inventory of goods produced under absorption costing

= 7,140 - 6,940 = 200 Units

Multiply this by the total production cost determined

= 200 units x $57 = $11, 400

Step 4: Find the difference between the value of closing inventory determined in step 1 and the value of closing inventory determined by absorption costing in step 3

= $11, 400 - $7,000 = $4,400

This means that the ending inventory of finished goods under variable costing (step 1) is $4,400 less than the ending inventory under absorption costing (step 3)

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