Pink (Pty) Ltd is considering changing its method of inventory valuation from the absorption costing to...

 

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Pink (Pty) Ltd is considering changing its method of inventory valuation from the absorption costing to direct costing and consulted you to determine the effect of this proposed change on the 2022 financial statements. The company manufactures a Purple, which is sold for R20 per unit. Production capacity is budgeted at 100 000 units of Purple annually. At this level of production, the costs per unit are: Material Labour Variable manufacturing overheads Fixed manufacturing overheads Selling expenses for the 100 000 units are Variable selling costs Fixed advertising costs Opening stock on 1 January 2022 Production for 2022 Sales Required: 2.1 2.2 R3 R5 R1 R1 R1 R0.50 5 000 units 80 000 units 60 000 units Prepare a Statement of Financial Performance on a variable cost basis with an adjustment for the change in the inventory valuation. Discuss with calculations what the effect on the profit of Blue Incorporate would be if the absorption cost basis was applied. Pink (Pty) Ltd is considering changing its method of inventory valuation from the absorption costing to direct costing and consulted you to determine the effect of this proposed change on the 2022 financial statements. The company manufactures a Purple, which is sold for R20 per unit. Production capacity is budgeted at 100 000 units of Purple annually. At this level of production, the costs per unit are: Material Labour Variable manufacturing overheads Fixed manufacturing overheads Selling expenses for the 100 000 units are Variable selling costs Fixed advertising costs Opening stock on 1 January 2022 Production for 2022 Sales Required: 2.1 2.2 R3 R5 R1 R1 R1 R0.50 5 000 units 80 000 units 60 000 units Prepare a Statement of Financial Performance on a variable cost basis with an adjustment for the change in the inventory valuation. Discuss with calculations what the effect on the profit of Blue Incorporate would be if the absorption cost basis was applied.

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Heres the answer to the first question 21 Statement of Financial Performance on a variable cost basis with an adjustment for the change in the inventory valuation Revenue Sales of 60000 units R20 per ... View the full answer