Question Tag: Closing Stock

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  • 20 Marks

MI – May 2024 – L1 – SB – Q3 – Costing Methods

Compute the price of store issues and the value of closing stocks using FIFO and LIFO methods.

From the information given below, you are required to compute the price of store issues and the value of closing stocks using:
i. First-In-First-Out (FIFO) basis
ii. Last-In-First-Out (LIFO) basis

  • January 2nd: Purchased 500 Units of XYZ at N40 per unit
  • January 7th: Purchased 200 Units at N45 per unit
  • January 10th: Issued 300 Units
  • January 12th: Purchased 350 Units at N42 per unit
  • January 15th: Issued 500 Units
  • January 18th: Purchased 200 Units at N38 per unit

a. Pricing using FIFO:

  • On January 10, 300 units are issued at N40 (first purchase price).
  • On January 15, 200 units are issued at N40 (from remaining January 2 stock) and 200 units at N45 (from January 7 stock), and 100 units at N42 (from January 12 purchase).
  • Closing stock: The closing stock consists of 250 units at N42 and 200 units at N38.

The closing stock value using FIFO is N18,100.

b. Pricing using LIFO:

  • On January 10, 300 units are issued at N45 (most recent purchase).
  • On January 15, 350 units are issued at N42 (from January 12 purchase), and 150 units at N40 (from January 2 stock).
  • Closing stock: The closing stock consists of 250 units at N40 and 200 units at N38.

The closing stock value using LIFO is N17,600.

Explanation: FIFO assumes that the first goods purchased are the first ones sold, so the closing stock reflects the most recent purchases. LIFO assumes that the last goods purchased are the first ones sold, so the closing stock reflects the older purchase prices.

  • 20 Marks

IMAC – AUG 2022 – L1 – Q1 – Budgeting

Differences in operating profit under marginal and absorption costing, preparation of profit statements, production forecast, and material purchase budget.

a) Marginal costing and Absorption costing are cost management techniques used to allocate cost to the products produced for their valuation. There are differences in the operating profit when either marginal costing or absorption costing is deployed.

Required: State TWO (2) reasons that account for the differences in the operating profit under Marginal costing and Absorption costing systems. (4 marks)

b) Adam Ltd is a producer of product Wale. In a period, it produced 20,000 units and sold 18,000 units of product Wale. The selling price per unit of the output is GH¢5. In the planned production period, relevant cost and revenue data were stated as:

GH¢
Sales 100,000
Production cost:
Variable 35,000
Fixed 15,000
Administration and selling overhead:
Fixed 25,000

Required: Prepare a profit or loss statement based on the following costing systems: i) Marginal costing systems. (8 marks) ii) Absorption costing systems. (8 marks)

a) Factors causing differences in profit:

  • Fixed factory overhead: Marginal costing system excludes fixed factory overhead from stock valuation, whereas absorption costing system includes fixed factory overhead into stock valuation.
  • Differences in closing stock: Differences in closing stock values may cause differences in the reported profit under both marginal and absorption costing. (2 points @ 2 marks each = 4 marks)Profit Statement (Marginal Costing):
    Description GH¢
    Sales (18,000 x GH¢5) 90,000
    Less: Marginal cost of production:
    Variable production cost 35,000
    Closing stock (2,000 x GH¢1.75) (3,500)
    Total marginal cost (31,500)
    Contribution 58,500
    Less: Fixed production cost 15,000
    Fixed selling and administration 25,000
    Total expenses (40,000)
    Net profit 18,500
    (8 marks)
  • Profit Statement (Absorption Costing):
    Description GH¢
    Sales (18,000 x GH¢5) 90,000
    Less: Production cost:
    Variable production cost 35,000
    Fixed production cost 15,000
    Closing stock (2,000 x GH¢2.50) (5,000)
    Total production cost (45,000)
    Gross profit 45,000
    Less: Selling and administration overheads (25,000)
    Net profit 20,000
    (8 marks)

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