Question

Adom Limited manufactures one product for which the following cost information has been collected:

                                                                                    GH¢’000

Direct materials                                                           10

Direct labor                                                                 29

Direct expenses                                                           3

Factory expenses

• Variable                                                           7
• Fixed                                                               5

Non-manufacturing costs

• Variable                                                          2
• Fixed                                                               4

Profit is 33% of total cost

Calculate:

1. The total cost of a unit
2. The prime cost of a unit
3. The selling price of a unit
4. The variable cost of a unit
5. The inventory valuation figure

Answer 1

Answer:

Note all amounts in GH¢'000

a.Calculation of total cost of unit :

● To calculate total cost of unit,Add all fixed cost and Variable cost(Direct Material,Direct labour) divides by total units produced

Total cost of a unit =(Total fixed costs +Total variable costs)/total units produced

=(10+29+3+7+5+2+4)/1

=60

b.Calculation of prime cost of a unit:

●Prime costs are a organisation expenses directly related to the materials and labor used in production.

=(Direct material + direct labour + direct expenses).  

=10 + 29 +3

=42

c.Calculation of selling price of a unit:

=cost price + Profit Margin

=60 + (60×33%)

=60 + 19.8

=79.8

d.Calculation of variable cost of a unit:

●Variable costs are expenses that vary in proportion to the volume of goods or services that a business produces. Which includes direct material,Labour,Variable factory expenses...

Total variable cost of unit =(direct material +direct labour + direct expenses + variable factory expenses + variable non manufacturing costs)/Total units produced

=(10+29+3+7+2)/1

=51

e.Calculation of inventory valuation figure:

●Inventory values can be calculated by multiplying the number of items on hand with the unit price of the items.

●As the Adom Limited manufacture only one product,

Inventory value = 1×60

=60