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Original budget:
Sales 10,000 units
Production 12,000 units
Standard cost per unit:
$
Direct materials 5
Direct labour 9
Fixed production overheads 8
Standard selling price 30Actual results:
Sales 9,750 units
Revenue $325,000
Production 11,000 units
Material cost $65,000
Labour cost $100,000
Fixed production overheads $95,000
There were no opening stocks.How should i calculate the closing inventory cost for actual results?
As the answer from book stated the closing inventory cost for both flexed budget and actual result are the same which is Closing inventory (22 × (11,000–9,750) = $ 27500
I cannot understand why the closing inventory cost for actual results is $ 27500.In management accounting we value inventories at standard cost – I explain the reason for this in my free lectures on variance analysis (which is the main reason for flexing the budgets).
Certainly for financial accounting we value inventories at the actual cost, but we are not doing financial accounting in Paper PM 🙂
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