Question

During the most recent year, Boston (PTY) Ltd has produced the following data:

Beginning inventory
Units produced	15 400
Units sold (R125 per unit)	8 200
Variable costs per unit:
Direct materials	R13
Direct Labor	R16
Variable Overheads	R8
Fixed Costs
Fixed overhead per unit produced	R23
Fixed selling and administrative	R18 500

Required:

1. How many units are in ending inventory

2. Using absorption costing, calculate the per unit -product cost. What is the value of ending inventory?

3. Using variable costing, calculate the per unit -product cost. What is the value of ending inventory?

4. Prepare an income statement using variable costing.

5. Prepare an income statement using absorption costing.

Answer 1

1.	Total number of units in ending inventory would be
	Beginning of inventory				Nil
add:	Number of units produced				15400
less:	Number of units sold				8200
	Number of units at the end of inventory				7200

2. Using absorption costing per unit cost would be
Direct labout cost per unit			R	16
Direct material cost per unit			R	13
Variable manufacturing overhead			R	8
Fixed Manufacturing over head			R	23
			R	60
	Value of ending inventory
	for 7200 units		7200X60	432000

3.Using variable costing per unit cost would be
Direct labout cost per unit			R	16
Direct material cost per unit			R	13
Variable manufacturing overhead			R	8
			R	37
	Value of ending inventory
	for 7200 units		7200X37	266400

4.

Income statement under varibale cost
Sales(8200*R125)			1025000
Variable cost of goods sold
opening inventory		Nil
Variable cost of goods'
manufactured
(15400X37)		569800
closing inventory
(7200X37)		266400	303400
	Gross margin		721600
Less: period expenses
Fixed manufacturing overhead		354200
Fixed selling and Admin expenses		18500	372700
	net operating income		348900

5.

Income statement under absorption costing
Sales(8200*R125)			1025000
Cost of Goods sold
Beginning		Nil
Cost of Goods manufactured
(15400X60)		924000
Closing inventory (7200*60)		432000	492000
			533000
Fixed Expenses - selling and Admin			18500
	Net operating income		514500