Inventory Valuation - Absorption costing - Financial Performance AQ2013

mcd Registered Posts: 9 New contributor ?
Struggling to get the closed inventory valuation on the below question:

The System Company manufactures one product, the Tem. Budgeted production is 4,000 Tems per week. During each of the first two weeks of this year it had costs as follows, exactly as budgeted.

Direct materials £5,000
Direct Labour £9,000
Fixed Overheads £6,000

The company had no finished goods in inventory at the start of week 1. In both weeks it produced 4,000 units. Sales in week 1 were 3,000 units, and in week 2 were 5,000 units, all at £8 per Tem.

The answer is £5,000 but not sure how they got that, I can't get near that whatever I try. Probably doing something really stupid.

This is question 1.3 in Analysing Financial Performance Tutorial - Osborne Books.

Can someone please advise me on what to do??



  • Adele69
    Adele69 AAT Student Posts: 320
    It looks like could be reading the answer wrong.

    Cost of Production for 4000 units in week 1 was £20,000, so the unit cost = £5.

    Sales for week 1 were 3000 of the 4000 units produced, leaving a remainder of 1000 units @ £5 per unit = £5000. This is used in the week 2 as sales are 5000 units (1000 opening inventory in week 2 plus the production 4000 units).
  • mcd
    mcd Registered Posts: 9 New contributor ?
    That's great thank you.
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