Question

Atloona Valve Ltd.                                          
Absorption and Variable Costing                                          
                                          
You are working as a Cost and Management Accountant at Atloona Valve Ltd. The company's planned production for the year just ended was 20,000 units. This production production level was achieved and 21000 units were sold. Other data follows:                                          
                                          
                                          
                                          
                                          
   Direct Material Used   £300,000                                   
   Direct Labour Incurred   £150,000                                   
   Fixed Manufacturing Overhead   £210,000                                   
   Variable Manufacturing Overhead   £100,000                                   
   Fixed Selling and Administrative expenses   £175,000                                   
   Variable Selling and Administrative expenses   £60,000                                   
   Finished Goods Inventory 1, Jan   2,000 units                                  
                                          
Last year company sold 22000 units whereas there were no finished goods opening balance. The cost per unit remained the same under variable costing in the current year as in the previous year.There were no work in process inventories at the beginning or end of the year.                                          
                                          
                                          
                                          
Required:                                          
                                          
a)   What would be Atloona Valve's finished goods inventory cost on 31 Dec. Under variable costing - method.                                      
b)   Calculate Product cost under Absorption costing for last and current years, and state the reason if it is equal in the both the years.                                      
                                          
                                          

Answer 1

finished goods Inventorn cost as on 31 Dec for Atoona valve Variable costing method particulay Direct material 50 300,000 150,000 Direct labour Variable manufactungoverhed 100,000 550,000 total variable cost of production $55000 opening finished good w finished good (275,00** closing 5,77,500 cost per unit = $ 550,000 x 2000, 20,000 *** x 1000 closing Inventory as on silbec entot = 5.50,000 = 20,000 - $ 27,500 Produced = 20,000 ma opeving : 2000 Closing Invalsh 1,000 ) Sold: 21000

otion costing 6 cost of production under absorption costing, for two year (unnt & Previous Direct matemal und - Direct labown & $ 300,000 £150,000 - £100,000 Variable manufacting Over head fixed manufaltning Over head = £ 2, 10,000 Production cost $ 7,60,000 because there is no woll-In-Program in begining & End of the year. only Ealtratant manufactuing calculation of Expenditure considered for the production (ht. . So booth Yeary production cost is same