I.
Finding the cost of inventory
First you need to find cost per unit, In order to find cost per unit, you get the total cost divide
to number of unit PRODUCED. For example direct labour per unit= 45000/10,000= 4,5 per
unit
Absorption cost:
Ending inventory cost = ( direct material per unit + direct labour per unit+ variable manufacturing
overhead per unit, FIXED MANUFACTURING OVERHEAD per unit) * number of unit in ending
inventory.
*** ending inventory cost in aborption costing still has FIXED MANUFACTURING OVERHEAD of the
goods that are not sold yet ( in this case is 400 units) since only part of FIXED MANUFACTURING
OVERHEAD already was deducted at the time of selling ( so for example , they deduct only for= 22
per unit * 9600 )
Variable costing
Ending inventory cost = ( direct material per unit + direct labour per unit+ variable manufacturing
overhead per unit,)* number of unit in ending inventory.
*** ending inventory cost in variable costing has no more FIXED MANUFACTURING OVERHEAD since
the total FIXED MANUFACTURING OVERHEAD already was expensed at the time of selling ( so for
example , they deduct completely 220,000 for fixed manufacturing overhead invariable costing)
Throughput costing
Ending inventory cost = ( direct material per unit) * number of unit in ending inventory.
II. To find cost of sale. PLS remember COST OF SALE is PRODUCT COST
Absorption cost
Cost of sale = ( direct material per unit + direct labour per unit+ variable manufacturing overhead per
unit, FIXED MANUFACTURING OVERHEAD per unit) * NUMBER OF UNIT SELLING
Variable cost
Cost of sale = ( direct material per unit + direct labour per unit+ variable manufacturing overhead per
unit) * NUMBER OF UNIT SELLING
**** you can see that we do not add the cost of VARIABLE SELLING AND ADMINISTRATIVE in cost of
sale. The reason is because it does not matter which cost you use, SELLING AND ADMINISTRATIVE IS
ALWAYS PERIOD COST.
If you still remember what I wrote on the board, I separated the variable selling and administrative
cost
It is like this
Sales
-
(direct material per unit + direct labour per unit+ variable manufacturing overhead per unit)
* NUMBER OF UNIT SELLING
COST OF SALES
(variable selling and administrative cost) * NUMBER OF UNIT SELLING
= contribution margin
Throughput costing
Cost of sale = ( direct material per unit) * NUMBER OF UNIT SELLING
IN ORDER TO FIND EXPENSE
Expense is period cost, so except of all the product cost you already listed above, the cost u
did not list is expense.
For example, in throughput costing , you only list direct material in Cost of sale , so you need
to list direct labour, fixed and manufacturing overhead, fixed and selling administrative cost
in the expense.and when you list the EXPENSE, make sure you get the TOTAL EXPENSE ( so it
does not base on the number of selling , it based on number of production). For example,
direct labour , you have to completelety expense total direct labour cost which is 45000