Question

In: Finance

The value of Mabotsana’s Limited’s closing inventory for October 2019 using the absorption costing method is:...

The value of Mabotsana’s Limited’s closing inventory for October 2019 using the absorption costing method is: (2)

a. R240 000

b. R360 000

c. R600 000

d. R420 000

The following information was taken from the production records of Mabotsana Limited for October 2019:

Opening inventory 1 000 units

Closing inventory 6 000 units

Direct labour cost per unit R40

Direct material cost per unit R20

Variable manufacturing overhead costs per unit R10

Fixed manufacturing overhead costs per unit R30

Variable selling and administrative costs per unit R6

Fixed selling and administrative costs per unit R14

Expert Solution

Answer : Correct option is R600,000

Reason :

Calculation of Ending Inventory using Absorption Costing :

Under Absorption costing the cost of ending Inventory per unit is shown in table below :

Direct labour Cost per unit	40
Direct Material Cost	20
Variable Manufacturing Overhead	10
Fixed manufacturing Overhead per unit	30
Total Manufacturing Cost	100

Value of Closing Inventory = 6000 units * 100 = R600,000

jeff jeffy answered 2 years ago

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