(a) Company B uses a traditional absorption costing system and absorbs production overheads on the basis of standard machine hours. The following are budgeted and actual information applied in its last accounting period:

BudgetActual

Production overheadRM750,000RM725,000

Machine hours125,000120,000

Units produces50,00050,000

Required:

Calculate the following:

(i)Budgeted overhead absorption rate(1 mark)

(ii)Actual overhead rate(1 mark)

(iii)Actual overhead absorbed(2 marks)

(iv)Production overhead under / over-absorbed(2 marks)

(b)The following are details of stock purchased and sold in Company C between January and June of a particular year:

Bought

Sold

January300 units at RM25 each

March250 units at RM30 each

April200 units at RM45 each

May100 units at RM42 each

June 200 units at RM 55 each

Required:

(i)Show calculations of stock valuation using the FIFO; LIFO; and AVCO methods using the perpetual system.(15 marks)

In your opinion, how do companies determine the choice of stock valuation method to be used. Explain TWO (2) reasons affecting the choice with suitable examples.