The following data relates to ABC ltd for July 2004. There was no opening stock
ID: 2341743 • Letter: T
Question
The following data relates to ABC ltd for July 2004. There was no opening stock of finished units
Number of units completed 900
Number of units sold 800Cost incurred:
Direct material $2700
Direct labour 1800
Variable overhead 2500
Fixed overhead 1500
--------
8 500
Required:
Using both the absorption costing and variable costing methods determine
a) Unit cost of completed production for July
b) Value of closing inventory.
c) Cost of goods sold
Explanation / Answer
Variable Cost Method Direct Material (900 *2700) 2430000 Direct Labour (900 * 1800) 1620000 Vaariable Overhead (900 * 2500) 2250000 Total Variable Cost (900 Unit) 6300000 Less: Closing Inventory (100 Unit) (100*7000) 700000 Total variable cost of unit sold 800 5600000 Add : Fixed Cost (1500*900) 1350000 Cost of Goods Sold 6950000 Variable cost Per unit = 6300000 / 900 7000 Under Variable cost method closing inventory valuation to be done on the basis of variable cost not on total cost so calclulation of closing inventory before adding fixed cost Absortion Cost Method Direct Material (900 *2700) 2430000 Direct Labour (900 * 1800) 1620000 Vaariable Overhead (900 * 2500) 2250000 Total Variable Cost (900 Unit) 6300000 Fixed Cost ( 1500*900) 1350000 Total Cost ( 900 Unit) 7650000 Less Closing Inventory (100 Unit) ( 8500 *100) 850000 Cost of Good Sold 6800000 Total Cost Per unit = 7650000 /900 8500 Under Absortion cost method closing inventory valuation to be done on total cost basis including fixed cost so calculation done after adding fixed cost Variable cost Method Absortion cost method Closing Inventory 700000 850000 COGS 6950000 6800000
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