Costs of sales and inventory under absorption costing I dont know whether this product line is profitable
Question:
Costs of sales and inventory under absorption costing
‘I don’t know whether this product line is profitable or not. We’re selling the Bauhaus line of bus passenger shelters for A900 each but our accounting records don’t tell us what the unit cost is. Can you work this out for us?’
UrbanFurniture Company is a small firm that specialises in the fabrication and assembly of ‘street furniture’ (shelters, kiosks, pavilions, seats) and playground equipment. Amparo, the manager in charge of the street furniture division, asks you to determine the unit cost of the Bauhaus line of shelter (see below) and the costs of shelters installed in x5 and being made at year-end.
She gives you the following information about the Bauhaus bus passenger shelter. The product line was introduced during x5. Sales have been brisk, due in part to the growth in bus usage as a result of the deregulation of scheduled bus services in the country. Forty units were fabricated and installed in the year and work had been started on a further six units. Amparo estimates that the units in progress at year-end are, on average, two-thirds complete with respect to materials and one-half complete with respect to fabrication labour and overhead. There are no shelters finished and awaiting installation at year-end.
According to UrbanFurniture’s records, the company purchased materials (sheet and tubular steel, acrylic panels, plastic seating, lighting) for this new product line at a cost of A12,800 in x5. The records also show that the cost of materials is A275 per shelter. To fabricate each shelter requires 20 hours of labour and the average hourly labour cost is A12. Fabrication overheads (such as depreciation and utilities) on this product line totalled A3,870 in x5. As for the costs of installing the 40 units (i.e. transport, site preparation, and assembly of shelters), these amounted to A2,880 for labour and A2,520 for overhead.
Required Calculate the costs of the Bauhaus shelters installed in x5 and of the inventory – both materials and work-in-progress – with respect to these shelters at end-x5. What is the gross profit margin ratio on the Bauhaus line in x5?AppenedixLO1
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