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QUESTION 11 Chamiching makes hacksaw blades. Inventory values are determined using the first in, first out...

QUESTION 11

  1. Chamiching makes hacksaw blades. Inventory values are determined using the first in, first out (FIFO) method. Production and sales data for the first three years appear below.

    Hacksaw blades

    Sold

    Produced

    Yr 1

    18,000

    22,000

    Yr 2

    25,000

    23,000

    Yr 3

    37,000

    35,000

    Sales price

    Full cost

    Yr 1

    $10.00

    $6.00

    Yr 2

    $11.00

    $6.60

    Yr 3

    $12.00

    $7.60

    For Chamiching, which of the following is true?

    In the first year, variable costs accounted for half of the full costs. Total fixed production costs increased each subsequent year by 20%, as a result of step-fixed costs and a general inflationary price increase.

    The variable cost of Yr 2 ending inventory is $6,887

    The full cost of Yr 2 ending inventory is double the variable cost ending inventory

    There are 3,000 hacksaw blades in ending inventory

    The fixed cost per unit in Yr 3 is $2.72

    None of the above

Solutions

Expert Solution

we will see which of the statement is true

1.The variable cost of Yr 2 ending inventory is $6,887

variable cost = $6/2 = $3 half of full cost

yr 2 ending inventory = beginning inventory+production - sales

beginning inventory = yr 1 production - sold = 22000-18000=4000

=4000+23000-25000

=2000units

variable cost =$3*2000units =$6000

so this statement if not true

2.The full cost of Yr 2 ending inventory is double the variable cost ending inventory

full cost = fixed cost + variable cost

=($3+20% increase) + $3

=3.6+3

=6.6$

inventory =2000units*6.6 =13200$

full cost =13200$

variable cost = $6000

no The full cost of Yr 2 ending inventory is not double the variable cost ending inventory so this statement is not true.

3.There are 3,000 hacksaw blades in ending inventory

ending inventory =beginning inventory + production -sales

yr 1 =22000-18000 =4000

yr 2 =4000+23000-25000=2000

yr 3 =2000+35000-37000=0

this statement is mot true.

4.The fixed cost per unit in Yr 3 is $2.72

fixed cost total in yr 2 = fixed cost yr 1 +20%

=3*22000+ 20% =79200

fixed cost in yr 3 = total fixed cost in year 2 + 20%

=79200 +20%

=95040$

fixed cost per unit =95040/35000units

=2.72$

this statement is true

ekkarill92 answered 1 year ago
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