Question 2 Hydropure Ltd commenced operations at the beginning of the current year. One of the company’s...

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Accounting

Question 2
Hydropure Ltd commenced operations at the beginning of thecurrent year. One of the company’s products, an alkalineantioxidant water filter, sells for $299 per unit. Informationrelated to the current year’s activities are as follows:
$
Variable costs per unit:
Direct materials 40
Direct labour 74
Manufacturing overhead 96
Annual fixed costs:
Manufacturing overhead 700,000
Selling and administrative 880,000
Production and sales activity:
Production (units) 25,000
Sales (units) 20,000
Hydropure Ltd carries its finished goods inventory at theaverage unit cost of production. There was no work in process atthe yearend.
Required:
(a) Determine the cost of the yearend finished goods inventory.
(b) Calculate Hydropure Ltd’s net profit for the current year.Ignore taxation.
(c) If the next year’s production decreases to 24,000 units andthe general cost behaviour and patterns do not change, what is thelikely effect on:
(i) Direct labour cost of $74 per unit? Explain why.
(ii) Fixed manufacturing overhead cost of $700,000? Explain why.
(iii) Fixed selling and administrative cost of $880,000? Explainwhy.
(iv) Average unit cost of production? Explain why.

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Solution a Production in units 25000 Sale in units 20000 Closing inventory in units 5000 Valuation Direct Material 4000 20000000 Direct labor 7400 37000000 Manufacturing overhead Variable 9600 48000000 Fixed 70000025000 14000000 Cost of yearend finished goods 119000000 Solution b Calculation of net profit 25000 units 20000 units Sale revenue 29900 598000000 Direct Material 4000 100000000 Direct labor 7400 See Answer

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