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As always, thank you very much for your help!
I have encountered few questions while going through KAPLAN exam kit.
1. It says that FIFO is potentially out of date valuation on issues. What is the meaning of ‘issues’ in this sentence?
2. Could you please distinguish between FIFO, LIFO and AVCO?
3. Budgeted production in a factory for next period if 4800 units. Each unit requires 5 labour hours to make. Labour is paid $10 per hour. Idle time represents 20% of the total labour time. How do you calculate the budgeted total labour cost?
Thank you so much!
1. By issues they are referring to the issuing of materials to production or goods to customers. It is potentially out of date because the cost used is an ‘old’ cost rather than the current cost.
2. There are dealt with in the Paper F3 lectures on inventory (because they are more of a Paper F3 topic as far as the exams are concerned).
3. For every 100 hours paid, 20 will be idle, and therefore only 80 hours will be worked. Putting it the other way round, for every 80 hours of work they need to pay for 100 hours.
So to produce 4,800 units needs 4,800 x 5 hours of work, and therefore they will need to pay for 4,800 x 5 x 100/80 hours at $10 per hour = $300,000. (Does your Kaplan book not contain an answer?)
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