Question

Question 1 Lion Sdn Bhd is a manufacturer of garden furniture. The company has consistently used weightage average cost in valuing inventory, but it is interested to know the effect on its inventory valuation of using First-In First-Out method (FIFO). At 28 February 2010 the company had inventory of 4,000 standard plastic tables, and has computed its value on each side of the two bases as: Basis Unit Cast (RM) Toral Value (RM) FIFO Weghted average During March 2010 the movements on the inventory of tables were as follows: Date Number of unit Production Cost per unit Production: 8 March 3.800 15 22 March 6. 000 1 8 Revenue: 12 March 18 March 24 March 28 March 5,000 2000 3,000 2.000 Sellin price per unit 1640 13700 16.50 18.00 Required: (a) Using FIFO. compute cost of closing inventory. sales and gross profit/loss as at 31 March 2010 (b) Using Weightage Average Cost method. compute cost of closing inventory sales and gross profit/loss as at 31 March 2010 Show relevant workings. In arriving at the total inventory values you should make calculations to two decimal places where necessary) and deal with each inventory movement in date order. [20 marks]

Answer 1

a) FIFO

Date	Particulars	Units	Rate per unit	Total Value	Profit /Loss	Balance
1 Mar	Opening Balance	4,000	16	64,000	-	4000 units @ 16
8 Mar	Produced	3,800	15	57,000	-	4000 units @16 3800 units @15
12 Mar	Sales	5,000	15.4	77,000	77000 - 79000 =(2,000) Loss	2800 units @15
18 Mar	Sales	2,000	13	26,000	26000 - 30000 =(4,000) Loss	800 units @ 15
22 Mar	Produced	6,000	18	108,000	-	800 units @ 15 6000 units @ 18
24 Mar	Sales	3,000	16.5	49,500	49500 - 51600 =(2,100) Loss	3800 units @ 18
28 Mar	Sales	2,000	18	36,000	36000 - 36000 = 0	1800 units @ 18

Therefore, cost of closing inventory is 1800 units * 18 per unit = 32,400.

Gross Sales = 77000 + 26000 + 49500 + 36000 = 188,500

Net loss = 2000 + 4000 + 2100 + 0 = (8,100)

b) Weighted average method

Date	Particulars	Units	Rate per unit	Total Value	Profit /Loss	Balance
1 Mar	Opening Balance	4,000	13	52,000	-	4000 units @ 13
8 Mar	Produced	3,800	15	57,000	-	7800 units @ 13.97 Rate = (52000+57000) / (4000+3800)
12 Mar	Sales	5,000	15.4	77,000	5000(15.4 - 13.97) = 7,150 Profit	2800 units @13.97
18 Mar	Sales	2,000	13	26,000	2000(13 - 13.97) = (1,940) Loss	800 units @ 13.97
22 Mar	Produced	6,000	18	108,000	-	6800 units @ 17.53 Rate = {(800*13.97)+108000} / (800+6000)
24 Mar	Sales	3,000	16.5	49,500	3000(16.5 - 17.53) =(3,090) Loss	3800 units @ 17.53
28 Mar	Sales	2,000	18	36,000	2000 (18 - 17.53) = 940  Profit	1800 units @ 17.53

Therefore, cost of closing inventory is 1800 units * 17.53 per unit = 31,554

Gross Sales = 77000 + 26000 + 49500 + 36000 = 188,500

Net Profit = 7150 - 1940 - 3090 + 940 = 3,060