Newcastle Company's Beginning and Ending Inventories for the Month of January

question 9

Multiple Choice

Newcastle Company's beginning and ending inventories for the month of January were as follows: $\begin{array}{lrr}&\text { January } 1&\text { January } 31\\ \text {Direct Materials } &£ 80,000 & £ 78,000\\ \text { Work in Process } &£ 155,000 &£ 166,000\\ \text { Finished Goods} &£ 90,000& £ 88,000\\\end{array}$

Production data for month follow: $\begin{array}{lrr} \text { Direct labour cost incurred.} &£ 215,000\\ \text { Actual manufacturing overhead cost incurred } &£ 145,000\\ \text {Direct materials purchases} &£ 160,000\end{array}$

Newcastle applies manufacturing overhead cost to jobs at the rate of 75% of direct labour cost incurred. This rate has been used for many years. The company does not close under- or overapplied manufacturing overhead to Cost of Goods Sold until the end of the year.
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The management accountant wants to apply manufacturing overhead at a rate of 75% of direct labour. The managing director wants to know how this change will affect reported profit. (Assuming Newcastle applies manufacturing overhead cost to jobs at the rate of 75% of direct labour cost incurred) . Newcastle Company's cost of goods manufactured for January was:

• A)£499,000.
• B)£497,000.
• C)£490,250.
• D)£527,250.

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Definitions:

Favorable Variance

A financial term indicating that actual costs were less or actual revenues were more than what was budgeted or forecasted.

Variable Cost

Variable costs vary directly with the level of production output, including expenses like raw materials and direct labor.

Flexible Budget

A dynamic budget that recalibrates based on fluctuations in operational volume or activity.

Output

The quantity of goods or services produced by a company during a specific period.