Let us assume that, on December 1st, 20X4, Artisan S.A. has 1000 units in inventories at 4544 lei standard cost per unit while variances between actual and standard cost amount to 22,720 lei. The company produced 5000 units during the month; the differences between the actual production cost and

Question

Let us assume that, on December 1st, 20X4, Artisan S.A. has 1000 units in inventories at 4544 lei standard cost per unit while variances between actual and standard cost amount to 22,720 lei. The company produced 5000 units during the month; the differences between the actual production cost and standard cost add up to 160,000 lei. The variance is considered to be favourable. The company sold 5600 units in December. What is the cost of sales and the cost of inventories unsold?

Accepted Answer

One possibility is to assign variances proportionally to goods sold and those left in inventory using a coefficient that gives the variance per unit of item in inventory:
K = ([latex]OB_{VAR} + I_{VAR})/(OB_{Q} + I_{Q})[/latex], where[latex] OB_{VAR}[/latex] is the amount of variances corresponding to the opening inventory, [latex]I_{VAR}[/latex] is the increase of variances owed to production during the period, [latex]OB_{Q}[/latex] is the quantity of items in the opening inventory and [latex] I_{Q}[/latex] is the increase in quantity (quantity produced) during the period.

K = (22,720 + 160,000)/(1000 + 5000) = 30.45 lei
Variances allocated to cost of sales (COS):
30.45 lei * 5600 units = 170,520 lei
Variances assigned to closing inventory:
(22,720 + 160,000) − 170,520 = 12,200 lei
Therefore, the cost of goods sold is:
5600 units * 4544 lei/unit + 170,520 lei = 25,616,920 lei
and the cost of the goods left in inventory:
400 units * 4544 lei/unit + 12,200 lei = 1,829,800 lei

Question 5.3: Let us assume that, on December 1st, 20X4, Artisan S.A. has ...

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