PROBLEM 13 (CPALE Adapted)

Juan Gabriel Company manufactures bath towels. The production comprises 70% of Class A, and 30% of Class B. Class A sells for P300 per dozen while Class B sells for P200 a dozen. During the current year, 50,000 dozens were produced at an average cost of P175 a dozen. The inventory at the end of the current year is as follows:

3,000 dozens Class A at P175 P 525,000

4,500 dozens Class B at P175 787,500

Total Inventory P 1,312,500

Using the relative sales value method, which management considers as a more equitable basis for cost distribution, compute:

1. the inventory's (cost) of the inventory? Hint: First, find the ratio using the relative sales value method, then allocate this to the total production cost of P8,750,000 [50,000 dozens at P175]. After that, divide it into the number of units of production per class to get the unit cost.