I have been asked to prepare the profit statement for two periods using absorption costing but I don't know how to calculate the fixed production cost.
Q. A company makes and sells a single product. At the beginning of period 1,there are no opening inventories of the product,for which the variable production cost is $4 and sales is $6 per unit. There are no variable selling costs. Fixed costs are $2,000 per period, of which $1,500 are fixed production costs. Normal output is 1,500 units per period. In period 1 sales were 1,200 units,production was 1,500 units. In period 2,sales were 1,700 units,production was 1,400 units.
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How to calculate fixed production cost.
10y ago#1But you are given the fixed production cost in the question!! On the fourth line of your question it says that $1,500 are fixed production costs!
ok for the same question how do calculate opening and closing inventory.
10y ago#3You need to absorb the fixed production overheads over the budgeted production, and then prepare a cost card. The cost per unit that you arrive at is what you will use to value inventories.
I suggest that you watch our Paper F2 free lectures. They cover everything needed to be able to pass the exam well (and I obviously cannot type out all of the lectures here :-) )
Why is fixed production cost 1400 in period 2?
6y ago#5Who is saying that the fixed production costs are $1,400 in period 2?
The standard fixed production cost is $1 per unit, and therefore since 1,400 units are produced in period 2, they will absorb 1,400 x $1 = $1,400. However there will then be an adjustment of $100 under absorption because the actual fixed overheads will stay at $1,500.
Have you watched my free lectures on this?
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