Question

Sena (Pty) Ltd, which manufactures a single product, has provided the following information for March 2019:

Selling price per unit: R 150

Units in opening inventory: Nil

Units manufactured: 9500

Units sold: 9250



Variable cost per unit:

Direct materials: R 30

Direct labour: R 45

Variable manufacturing overhead: R 18,40

Variable selling and admin: R 13,20

Fixed costs:

Fixed manufacturing overheads: R 97 850

Fixed selling and admin: R 31 500



The closing inventory for March 2019 using the absorption costing method is:






R 23 350


R 26 650


R 25 925


R 18 750

Answer 1

To calculate the closing inventory using the absorption costing method, we first need to determine the total cost per unit under absorption costing. Absorption costing includes all manufacturing costs (both variable and fixed) in the cost of the product.

### Step 1: Calculate the total variable cost per unit

Given:

- Direct materials: R 30
- Direct labor: R 45
- Variable manufacturing overhead: R 18.40

Total variable cost per unit:
\[
\text{Total Variable Cost per Unit} = \text{Direct Materials} + \text{Direct Labor} + \text{Variable Manufacturing Overhead}
\]
\[
\text{Total Variable Cost per Unit} = 30 + 45 + 18.40 = R 93.40
\]

### Step 2: Calculate fixed manufacturing overhead per unit

Fixed manufacturing overheads: R 97,850

Total units manufactured: 9,500

Fixed manufacturing overhead per unit:
\[
\text{Fixed Manufacturing Overhead per Unit} = \frac{\text{Total Fixed Manufacturing Overheads}}{\text{Total Units Manufactured}}
\]
\[
\text{Fixed Manufacturing Overhead per Unit} = \frac{97,850}{9,500} \approx R 10.30
\]

### Step 3: Calculate total cost per unit (absorption costing)

Total cost per unit under absorption costing:
\[
\text{Total Cost per Unit} = \text{Total Variable Cost per Unit} + \text{Fixed Manufacturing Overhead per Unit}
\]
\[
\text{Total Cost per Unit} = 93.40 + 10.30 = R 103.70
\]

### Step 4: Calculate closing inventory

Total units manufactured: 9,500
Total units sold: 9,250
Thus, closing inventory:
\[
\text{Closing Inventory Units} = \text{Total Units Manufactured} - \text{Total Units Sold} = 9,500 - 9,250 = 250
\]

Value of closing inventory:
\[
\text{Closing Inventory Value} = \text{Closing Inventory Units} \times \text{Total Cost per Unit}
\]
\[
\text{Closing Inventory Value} = 250 \times 103.70 = R 25,925
\]

### Conclusion

The closing inventory for March 2019 using the absorption costing method is **R 25,925**.