B. Under absorption costing, the per unit cost of inventory includes all production costs, both fixed and variable. As such, the per unit cost for Valyn is $30 (this is made up of direct materials, direct labor, variable overhead and fixed overhead per unit). At the end of the period there were 40,000 units in ending inventory, since there were 35,000 at the start of the period and they produced 5,000 more units than were sold during the period. This gives an ending finished goods inventory of 40,000 units × $30 per unit, or $1,200,000.

C. This answer could result from including selling expenses as inventoriable costs and using an ending inventory of 30,000 units to calculate the value of the ending inventory. However, there is more than one way to arrive at this incorrect answer. Please see the correct answer for an explanation.

D. This answer results from including fixed manufacturing cost at the actual incurred cost of $715,000 divided by the 130,000 units produced, which was $5.50. Since Valyn uses a predetermined manufacturing overhead rate for applying manufacturing overhead to its product, and since over- or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the end of the reporting year, the cost of the units in ending inventory will be only the standard, or planned, costs. This included fixed manufacturing cost of $5.00 per unit, not $5.50 per unit.