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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,
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
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.
(3) Discuss briefly the classification of fixed and variable costs.
