2.2. Traditional costing methods
A subsection of Accounting, 9706, through 2. Cost and management accounting (AS Level)
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Kevin runs a small manufacturing business. He is considering which method of inventory valuation he should use. REQUIRED State two advantages to a business of using each of the following methods of inventory valuation. First in first out (FIFO) Last in first out (LIFO) Average cost (AVCO) Additional information Kevin manufactures a single product and he intends to value his closing inventory at selling price which includes a mark-up on cost. REQUIRED Explain why Kevin should not value his inventory at this price. Additional information Kevin currently uses marginal costing but is considering changing to absorption costing. The following budgeted information per unit is available. $ Selling price Direct material Direct labour Budgeted production 20 000 units per month Budgeted fixed overheads $100 000 per month. At 1 January there was no inventory held. The following actual results are available for January and February. January February Sales 15 000 21 000 Production 18 000 18 000 Fixed overheads $100 000 $100 000 REQUIRED Prepare the income statement for each of the months of January and February using marginal costing. Kevin Marginal cost income statement January February $ $ $ $ Prepare the income statement for each of the months of January and February using absorption costing. Kevin Absorption cost income statement January February $ $ $ $ Prepare a statement reconciling the marginal cost profit with the absorption cost profit for January. Advise Kevin whether or not he should change from marginal costing to absorption costing. Justify your answer.
9706_w20_qp_22
THEORY
2020
Paper 2, Variant 2
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Questions Discovered
533