Question

ABC manufactures and sells metal shelving. It began operations on Jan 01. Costs incurred for the current year are as follows:

DM                                           Rs 1.4 lacs   V

DL                                            Rs 0.3 lacs   V

PLANT ENERGY COSTS      Rs 0.05 lacs V

IND L                                       Rs 0.1 lacs   V               Rs 0.16 lacs    F

IND other                                 Rs 0.08 lacs   V             Rs 0.24 lacs   F

MKT. DIST and Cust OH       Rs 1.2285 lacs    V        Rs 0.4 lacs      F

Admn OH                                                                       Rs 0.5 lacs   F

Variable manufacturing costs are with respect to units produced; variables MDC are wrt to units sold

Inventory data: begin Jan 01 and ending Dec 31

DM      0 kg          2000 kg

WIP     0 units      0 units

FG        0 units     ? units

Production in the current year was 1 lac units; 2 kg of DM is used to make 1 unit of FG. Revenue were Rs 436800. The FG inventory ending is at average unit manufacturing cost for the current year and was Rs 20970. Calculate period ending DM inventory cost; period ending FG inventory in units; SP per unit; operating income

and

If in the above problem, Indirect other manufacturing costs are not inventoriable cost and there are 9000 units of FG inventory on Dec 31. Then, calculate FG inventory ending total cost, and operating income of the year

Answer 1

PART 1

To Calculate the following:

a) period ending DM inventory cost;

b) period ending FG inventory in units;

c) SP per unit;

d) operating income

Solution:

a) period ending DM inventory cost;

2 kg of DM is used to make 1 unit of FG, so for 1,00,000 units DM used will be 2 kg * 1,00,000 units = 2,00,000 kg.

The direct material costs of Rs.1,40,000 are direct materials used, not purchased. Hence, DM cost per kg will be Rs.1,40,000 / 2,00,000 = 0.7.

Therefore period ending DM Inventory cost will be 2000 kg(Given) * 0.7 = Rs. 1,400

b) period ending FG inventory in units;

Calculation of Manufacturing cost for 1,00,000 units

Particulars	Variable	Fixed	Total
Direct Material cost (DM)	1,40,000		1,40,000
Direct Labour cost (DL)	30,000		30,000
Plant Energy cost	5,000		5,000
Indirect Labour cost (IND L)	10,000	16,000	26,000
Indirect others (IND other)	8,000	24,000	32,000
COST OF GOODS MANUFACTURED	1,93,000	40,000	2,33,000

Average unit Manufacturing cost will be 2,33,000 / 1,00,000 i.e. 2.33 per unit

Period end FG inventory in units will be 20,970 / 2.33 i.e. 9,000 units

c) SP per unit;

Units sold = Opening inventory + Production - Ending Inventory

Units sold = 0 + 1,00,000 - 9,000

Units sold = 91,000 units

Revenue is 4,36,800

Hence, Selling price per unit will be Revenue / units sold i.e. 4,36,800/91,000 = 4.8 per unit

d) operating income

Revenue (91,000 * 4.8)		4,36,800
Opening FG	NIL
Cost of goods manufactured	2,33,000
Less: Closing / Period end FG	20,970
Cost of units sold	2,12,030
Gross Margin		2,24,770
Operating Cost:
MKT. DIST and Cust OH (122850+4000)	1,62,850
Admn OH	50,000	2,12,850
Operating Income		11,920

PART 2

FG inventory ending total cost, and operating income of the year. If, Indirect other manufacturing costs are not inventoriable cost and there are 9000 units of FG inventory on Dec 31

Since, the period ending units are 9000 units the cost will be as follows:

Average unit Manufacturing cost will be 2,01,000 / 1,00,000 i.e. 2.01 per unit

Period end FG inventory in units will be 9,000 units * 2.01 = 18,090

operating income

Revenue (91,000 * 4.8)		4,36,800
Opening FG	NIL
Cost of goods manufactured	2,01,000
Less: Closing / Period end FG	18,090
Cost of units sold	1,82,910
Gross Margin		2,53,890
Operating Cost:
MKT. DIST and Cust OH (122850+4000)	1,62,850
Admn OH	50,000
Indirect other manufacturing costs (8000+24000)	32,000	2,44,850
Operating Income		9,040

Indirect other manufacturing costs (8000+24000) Since, Indirect other manufacturing costs are not inventoriable cost, considered under other operating cost.