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Stock Valuation Blue Lid is a retail store that buys and sells one product - Leaving Cert Accounting - Question 8 - 2013

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Stock Valuation Blue Lid is a retail store that buys and sells one product. The following information relates to the purchases and sales of the firm for the year 20... show full transcript

Worked Solution & Example Answer:Stock Valuation Blue Lid is a retail store that buys and sells one product - Leaving Cert Accounting - Question 8 - 2013

Step 1

Calculate the value of closing stock using ‘First in/First out’ (FIFO) method.

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Answer

To calculate the closing stock using the FIFO method:

  1. Determine the total purchases and sales:

    • Purchases:
      • 4,000 @ €6
      • 2,500 @ €6
      • 1,700 @ €8
    • Sales (for the period):
      • 1,000 @ €9
      • 1,200 @ €11
      • 1,400 @ €11
      • 1,200 @ €14

  2. Calculate total sales in units:

    • Total Sales = 1,000 + 1,200 + 1,400 + 1,200 = 4,800 units

  3. Determine closing stock:

    • Total available units:
      • Opening Stock: 4,500
      • Purchases: 8,200
    • Total = 4,500 + 8,200 = 12,700 units

  4. Units remaining after sales:

    • Remaining = 12,700 - 4,800 = 7,900 units

  5. Value the closing stock:

    • 4,500 units @ €6 = €27,000
    • Next, 3,400 units will be @ €6 each from the purchases of 2,500 @ €6.
    • Final valuation:

o 4,500

o 3,400

The closing stock valuation is calculated as:

  • 4,500 units @ €6 = €27,000
  • 3,500 units @ €6 = €20,400.

So the total closing stock valuation is €47,400.

Step 2

Prepare a trading account for the year ending 31/12/2012.

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Answer

To prepare the trading account for the year ending 31/12/2012:

Trading Account for the Year Ending 31/12/2012

Particulars€
Sales89,300
Less: Cost of Sales
Opening Stock22,500
Add: Purchases38,000
Less: Closing Stock(38,000)
Gross Profit1,300

Therefore, the gross profit for the year is €1,300.

Step 3

Calculate the overhead absorption rates for each department.

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Answer

To calculate the overhead absorption rates for each department:

  1. Manufacturing:

    • Budgeted Overheads = €180,000
    • Direct Labour Hours = 36,000
    • Overhead absorption rate = Overheads / Direct Labour Hours = €180,000 / 36,000 = €5 per Direct Labour Hour

  2. Assembly:

    • Budgeted Overheads = €99,000
    • Direct Labour Hours = 18,000
    • Overhead absorption rate = €99,000 / 18,000 = €5.50 per Direct Labour Hour

  3. Finishing:

    • Budgeted Overheads = €36,000
    • Direct Labour Hours = 4,500
    • Overhead absorption rate = €36,000 / 4,500 = €8 per Direct Labour Hour

Step 4

Calculate the selling price of Job Number 666.

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Answer

To calculate the selling price of Job Number 666:

  1. Direct Materials:

    • Quantity = 30 kg @ €1.20/kg = €36.00

  2. Direct Labour:

    • Manufacturing: 20 hours @ €5 = 100.00
    • Assembly: 10 hours @ €2.50 = 25.00
    • Finishing: 6 hours @ €3.75 = 22.50
    • Total Direct Labour = €147.50

  3. Budgeted Overheads:

    • Manufacturing: 20 hours @ €5 = €100.00
    • Assembly: 10 hours @ €5.50 = €55.00
    • Finishing: 6 hours @ €8 = €48.00
    • Total Overheads = €203.00

  4. Total Cost:
    Total Cost = Direct Materials + Direct Labour + Budgeted Overheads = 36 + 147.50 + 203 + 40 = €426.50

  5. Profit Calculation:

    • Profit = 25% of Selling Price
    • Selling Price = Total Cost / (1 - Profit Margin)
    • Selling Price = €570 / 0.75 = €570

Thus, the selling price of Job Number 666 is €570.

Step 5

Under and over absorption of costs

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Answer

To determine the under and over absorption of costs for Hake Manufacturing Ltd:

  1. For Department A:

    • Budgeted = €160,000
    • Actual = €175,000
    • Absorbed = €185,000
    • Over/Under absorption = Actual - Absorbed = €175,000 - €185,000 = €10,000 over absorption

  2. For Department B:

    • Budgeted = €63,000
    • Actual = €41,000
    • Absorbed = €63,000
    • Over/Under absorption = €41,000 - €63,000 = €22,000 under absorption

  3. For Department C:

    • Budgeted = €46,000
    • Actual = €38,000
    • Absorbed = €46,000
    • Over/Under absorption = €38,000 - €46,000 = €8,000 under absorption.

Step 6

Calculate actual overhead absorbed rates for Departments A, B and C.

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Answer

To calculate the actual overhead absorbed rates for Departments A, B, and C:

  1. Department A:

    • Actual Overhead = €175,000
    • Actual Direct Labour Hours = 27,000
    • Overhead Absorption Rate = Actual Overhead / Direct Labour Hours = €175,000 / 27,000 = €6.48 per direct labour hour.

  2. Department B:

    • Actual Overhead = €41,000
    • Actual Direct Labour Hours = 31,000
    • Overhead Absorption Rate = Actual Overhead / Direct Labour Hours = €41,000 / 31,000 = €1.32 per direct labour hour.

  3. Department C:

    • Actual Overhead = €38,000
    • Actual Direct Labour Hours = 45,000
    • Overhead Absorption Rate = Actual Overhead / Direct Labour Hours = €38,000 / 45,000 = €0.84 per direct labour hour.

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