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Hello, can someone, please explain to me step by step how to solve the following problem:
Cream Ltd produces a certain food item in a manufacturing process. On November 1, there was no opening stock of work-in-progress. During November, 500 of units materials were input to the process, with a cost of $9,000. Direct labour costs in November were $3,840. Production overhead is absorbed at the rate of 200% of direct labour costs. Closing stock on 30 November consisted of 100 units which were 100% complete as to materials and 80% as to labour and overhead. There was no loss in process.
The full production cost of completed units during November was $16, 800. How did they get this answer? Thanks in advance.
Sure….
1) First, remember that:
TMC/Unit = Total Material Cost/Total Units completed for Materials
TLC/Unit = Total Labout Cost/Total Units Completed for Labour
POH/Unit = Total POH Cost/Total Units Completed for POH2) For Total Costs:
Total Material Costs = $9,000
Total Labour Costs = $3,840
Total POH Costs = 200% of Labour Costs = 3,840*200% = $7,6803) 500 units were input, 100 units were closing inventory, meaning 400 units were fully completed (100% for Material & Conversion Costs).
Closing Inventory:
Completed for Materials = 100 Units (100%)
Completed for Labour = 80 Units (80% of 100 Units)
Completed for POH = 80 Units (80% of 100 Units)4) Total Cost per Unit: (TMC/Unit + TLC/Unit + POH/Unit)
TMC/Unit = $9,000/(400+100) = $9,000/500 = $18
TLC/Unit = $3,840/(400+80) = $3,840/480 = $8
POH/Unit = $7,680/(400+80) = $7,680/480 = $16
Total Cost/Unit = $42Total Cost for Completed Units = 400x$42 = $16,800
Total Cost for Closing Inventory:
Material Cost = $18×100 = $1,800
Labour Cost = $8×80 = $640
POH Cost = $16×80 = $1,280
Total Value of Closing Inventory = $1,800+$640+$1,280 = $3,720Hope it helped you. If you have any queries, feel free to ask.
@secondstar: Wow, thanks for the explanation! 🙂
@secondstar: Are you on WhatsApp or FB? I would like to connect with you. 🙂@thefutureaccountant
You are welcome…
i dont use facebook.
twitter @fehmeedali@secondstar: I have added you on Whatsapp.
@thefutureaccountant said:
@secondstar: I have added you on Whatsapp.Got it 😉
This helped me too. We should connect via twitter. Find me here @iShyaka26
@ishyaka26 : When are you sitting MA1 exam? 🙂
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