[bellasp]

Thank you John. I am using the notes alongside the lectures and then I shall buy an exam kit as you have previously advised on the forum ?

Many thanks and Merry Christmas ?

[bellasp]

Thank you very much for your help

[bellasp]

Yes, I understand how they reached $21 and with your explanation now understand this example fully.

Thank you very much for your help, it’s much appreciated.

[bellasp]

Sorry! The whole example is as follows …. I just done understand how they get to the value of the unsold inventory

A business has the following costs for a period

Materials 600
Labour 1000
Production overheads 500
Administration overheads 2,800

During the period 100 units are produced. If all of these costs were allocated to production units each unit would be valued at $28

This would be incorrect. Only production costs are allocated to units of inventory. Administrative overheads are non- production costs.

So each unit of inventory should be valued at 21 ((600+1,000+500)/100)

This affects both gross profit and the valuation of closing inventory. If during the period 80 units are sold at $40 each, the gross profit will be

Sales (80×40) = 3,200
Cost of sales (80×21) = 1,680
Gross profit= 1,520

The value of closing (unsold) inventory will be 420 (20×21)

Many thanks for your help John, I’m self studying and now wish I had just used your course notes!! I am combining this book with your lectures which I find most useful so thank you

[bellasp]

Thank you for your reply

[bellasp]

Well done and thanks for the studying tips ????

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