Intermediate: Preparation of cost accounts from imcomplete information Deamcroft PLC, a company manufacturing special purpose plastic fittings for the building industry, operates a batch costing system, using actual costs, which is not integrated with the financial accounts.

At the end of period 8 there was a fire in the company's main store, the result of which was that all the material stock records were destroyed, together with all the materials held in store. The work in progress and finished goods physical stock fortunately were not damaged. Immediately the fire damage had been cleared away a physical stock count and valuation of the work in progress and finished goods stocks was undertaken. These closing stock values, together with other relevant data summarizing the activities of the company during period 8, are shown below.

It should be assumed that all material issues during Period 8 were charged direct to production.
The company operates a marginal (variable) costing system in the cost ledger, stocks are valued at variable cost and wages are regarded as variable. The variable produc1ion overhead absorption rate is 80% of direct wages and fixed production overheads in period 8 amounted to £21 000.
The selling price of the company's products is calculated by adding a contribution margin of 663% on to variable factory cost.
Required:

(a) Calculate the estimated cost of the closing stock of materials destroyed by the fire.
(10 marks)

(b) It has been suggested that the claim on the insurance company for the loss of stocks should be based, not on historic costs, but on replacement costs, and that in future material issues to production also should be charged using replacement costs.
(i) Briefly outline how you would support a claim to the insurance company based on replacement costs.
(3 marks)
(ii) Comment upon the Implications of charging material issues to production using replacement costs. (4 marks)

(c) Briefly comment upon the implications of valuing stocks of work in progress and finished goods using the marginal (variable) cost approach.

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Stocks: Materials Work in progress Finished goods At beginning of period 8 16740 17500 5490 At end of period 8 All destroyed 22160 8770