Due to changes in fashion trends, the selling price of all the plates in closing inventory decreased dramatically in December 2019. Large plates can now only be sold at R9.50 each and small plates at R5.50 each. The decreased price is due to obsolete painting techniques and will not influence new production in 2020's selling prices. Selling costs amount to R0.50 per plate, irrespective of the size. a) calculate the under-recovery of fixed overheads for the year ended 31 December 2019.
ArtyFarty Ltd. manufactures handmade, individually painted clay plates. These plates are sold to stores that sell kitchenware. ArtyFarty Ltd. manufactures large and small plates.
The cost price of the clay amounts to R5.00 for a large plate and R2.50 for a small
plate. The price of the paint they use amounts to R4.30 for a large plate and R2.70 for
a small plate, irrespective of which color is used. Normally 2% of paint is wasted when
it dries on the paintbrushes and pallets.
The factory employs 10 ladies who, according to the budget, can produce 20 plates
each (large or small) per day. The factory operates 230 days a year. These ladies are
paid according to the number of plates they complete each month. 42 000 plates were
completed during the year and a wage of R336 000 was paid out to the ladies.
Variable manufacturing
small plate. Fixed manufacturing overheads amounted to R138 000 for the year. The
size of the plate does not influence the apportionment of fixed costs.
The closing inventory was as follows on 31 December 2019:
Clay 210 kg
Paint 100 liters
Work-in-progress - large plates 50
Finished goods - large plates 320
Finished goods - small plates 280
The clay was purchased at R30 per kilogram in October 2019 and the current purchase
price is R35 per kilogram. The paint was purchased at R80 per liter in November 2019
and the current purchase price is R75 per liter.
In respect of work-in-progress 80% of the total cost has been incurred and it will cost
another R215 to complete these plates. These plates have been painted.
Due to changes in fashion trends, the selling price of all the plates in closing inventory
decreased dramatically in December 2019. Large plates can now only be sold at R9.50
each and small plates at R5.50 each. The decreased price is due to obsolete painting
techniques and will not influence new production in 2020's selling prices. Selling costs
amount to R0.50 per plate, irrespective of the size.
a) calculate the under-recovery of fixed overheads for the year ended
31 December 2019.
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