To calculate the value of the ending finished goods inventory under absorption costing, we need to find the unit product cost by including all manufacturing costs, both variable and fixed. Then, we'll apply that unit cost to the unsold units to find the ending inventory value.

Step-by-Step Solution

1. Calculate Total Manufacturing Costs:

   • Direct materials = $40,000
   • Direct labor = $20,000
   • Variable manufacturing overhead = $12,000
   • Fixed manufacturing overhead = $25,000

   Total manufacturing costs = $40,000 + $20,000 + $12,000 + $25,000 = $97,000

2. Calculate Unit Product Cost: Since 10,000 units were produced, we calculate the cost per unit by dividing the total manufacturing costs by the number of units produced. $\text{Unit Product Cost} = \frac{\text{Total Manufacturing Costs}}{\text{Units Produced}} = \frac{97,000}{10,000} = 9.70$

3. Determine Ending Inventory (Unsold Units):

   • Units produced = 10,000
   • Units sold = 9,000
   • Ending inventory = Units produced - Units sold = 10,000 - 9,000 = 1,000 units

4. Calculate Value of Ending Inventory: Using the unit cost calculated under absorption costing: $\text{Ending Inventory Value} = \text{Ending Inventory Units} \times \text{Unit Product Cost} = 1,000 \times 9.70 = 9,700$

Answer

The value of the ending finished goods inventory under absorption costing is: $\boxed{9,700}$

Explanation

Under absorption costing, fixed manufacturing overhead is included in the unit product cost, so the inventory valuation reflects both variable and fixed manufacturing costs.

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Related Questions

1. How would the ending inventory value change under variable costing?
2. What impact does fixed manufacturing overhead have on unit product cost?
3. How would changes in production levels affect the per-unit cost under absorption costing?
4. What is the difference in inventory valuation between absorption costing and variable costing?
5. How does selling and administrative expenses affect inventory value in absorption costing?

Tip

Absorption costing is typically used for external financial reporting, while variable costing is often preferred for internal management because it shows the impact of fixed costs separately.