Student Doubts Forum

Problem 17

Problem 17

by Vittoria Marino -
Number of replies: 1

hello!

I'm doing point 17.3. My calculations:

Sales= 12500+24000= 36500

COGM I unit= 13565/300= 45.22--> COGS= 45.22 x 250= 11305

COGM II unit= 20990/500= 42--> COGS= 42 x 500= 20990

Gross Profit= PBT= 4205

I do not understand which other expenses I have to subtract.

Thank you!

In reply to Vittoria Marino

Re: Problem 17

by Madalena dos Santos de Paiva -
Hello Vittoria,

Firstly, you need to be careful when calculating COGS. As stated in the exercise, the company uses the weighted average cost (WAC) method for inventory valuation. This means you cannot simply calculate COGS as COGM per unit × units sold, since there are opening stocks of Finished Goods to consider.
For Product Diet Type I, the 300 units produced had a cost per unit of 45.2€, while the 100 units in opening stock had a cost of 34.4€. After calculating the WAC and considering 250 units sold, you get COGS = 250 × 42.4€ = 10,603€. You also need to do the same for the second product.

Once you have the correct COGS, you can determine the gross profit. Then, you just have to subtract the non-manufacturing costs to get the PBT (as no other costs are mentioned in the exercise). In this case, the non-manufacturing costs include 6000€ of fixed costs and variable costs that are 2.5€ of sales (equal to 913€ in total).

I hope it was clear!

Madalena Paiva