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                                                          800
Cost 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

Answer 1

	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