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Dear Tutor,
Herewith the examiner’s report for June’2017 Example 2
Example 2
In a period, a process produced 2,000 kg of a main product and 400 kg of a by-product. The cost of production
was $5,000. 1,800 kg of the main product were sold at $10 per kg and all of the by-product produced was sold
for $1per kg. There was no opening inventory.
If the sales income of the by-product is deducted from the cost of production, what is the profit for the period?A $13,400
B $13,860
C $13,900
D $15,860This question covers B3b(xii) of the syllabus.
The correct answer is B, which was the second most popular selection by candidates.
To calculate this candidates need firstly to calculate a unit cost ($5,000 – 400 kg x $1)/2000 units= $2.30 per
unit). This can then be used to calculate a profit on the 1,800 units sold (1,800 units x ($10 – $2.30) =
$13,860)I WAS CONFUSED WHERE IS THE CLOSING STOCK FOR 200 KG (2000KG-1800KG) OF MAIN PRODUCT?
SHOULD INCLUDED THE CLOSING STOCK IN ORDER TO CALCULATED THE PROFIT?
Thank you for advise.
Profit is always calculated as the sales revenue (1,800 x $10) less the cost of the goods actually sold (1,800 x $2.30).
If we were doing financial accounts (which we are not), then we would calculate the cost of goods sold as being the cost of production (2,000 x $2.30) less the closing inventory (200 x $2.30), but this would give exactly the same answer.
(The closing inventory appears on the Statement of financial position, is sold next year, and will form part of next years cost of goods sold.)
Have you watched my free lectures on this? The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
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