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Inventory Costing for Reporting in Financial Statements

Inventory Costing for Financial Statements. The Tista Fiberous Incorporation mines and sells a fibrous minerals. On December 31, 19Y, the inventory amounted to 25,000 tons of fibers; all of this inventory was produced during 19Y and is costed at $19.88 per ton, the average cost per ton produced in 19Y. Production and costs in other years were as follows :

Tons Produced and Average Costs
                                            Tons               Cost
Year                                 Produced           per Ton
19A                              170,000            S14.65
19B                              180,000               14.85
19C                              175,000               15.06
19D                              110,000               19.88

Production Costs

                                             Amounts                Per Ton
                                        19X         19Y               19X          19Y
Tons produced             175,000     110,000
Direct labor               $ 472,500    401,500         $2.70          $3.65
Indirect labor                346,500    286,000          1.98            2.60
Supplies and other 
production expenses     708.750    479,600           4.05           4.36
Depletion                      262,500    165,000           1.50           1.50
Salaries (superintendents, 
plant clerks,watchmen)  217,000    233,200           1.24           2.12
Depreciation                  227,500    247,500           1.30           2.25
Other fixed expenses      400,750    374,000           2.29           3.40
Total                         $2,635,500 $2,186,800       $15.06       $19.88

Indirect labor, supplies, and other production expenses are considered variable costs. There are no semi-variable costs. Depletion is computed at SI. 50 per ton mined, and depreciation on machinery and equipment is computed on a straight-line basis. Due to an extended strike in 19Y, much less of the fibrous mineral was mined than during the three preceding years in which production was considered normal. The management explained that the rise in 19Y unit labor costs was caused by general increases of from 33% to 40% in hourly wage rates. The increase in the unit cost of supplies and other production expenses is accounted for by an increase in prices of about 10%. All increases took place at the beginning of the year.

Required: (1) Is the pricing of the closing inventory on December 31, 19Y, at $19.88 per ton acceptable for financial statement purposes? Discuss fully. 
(2) Assuming that the closing inventory of $19.88 per ton is not acceptable for financial statement purposes, how should it be adjusted? Present calculations in full and state how the adjustment should be dealt with in the statements.
(3) Discuss briefly the classification of fixed and variable costs.
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