REVIEW QUESTIONS: INVENTORY VALUTION METHODS

Case 1

Date   Received   Issued   Balance

  Quantity Price Amount Quantity Price Amount Quantity Price Amount
1 July '20 100 10 1 000       100 10 1 000
5 July '20 150 11 1 650       100 10 1 000
              150 11 1 650
              250   2 650
10 July'20       200 ?  ? 50 ?  ?
Store ledger card

Required:

1. How would you price the issue of 200 units on 10 July 2020?
2. How would you value the 50 units on hand (closing inventory) on 10 July 2020?

QUESTION 1

Piko recorded the following transactions regarding tables his company manufactured during
August 2018:

August 1 Balance 60 units @ N$150.00 per unit.

10 Produced 140 units @ N$155.00 unit
11 Sold 190 units @ N$190.00 per unit
12 Produced 70 units @ N$160.00 per unit
15 Sold 30 units @ N$200.00 per unit

REQUIRED:

a) Calculate the closing inventory, using FIFO and CWA.

b) Calculate the gross profit according to the two methods.

QUESTION 2

1
 REVIEW QUESTIONS: INVENTORY VALUTION METHODS

The management director of Viva company manufacturing one product, a standard sized office
desk, ask you as the recently appointed works accountant to investigate the material control
procedures operating in the factory. You have arranged for a physical stock count of raw
materials, work-in-progress and finished goods to take place at the beginning and end of April.
The results of this stocktaking and other relevant to the consumption of materials during April
are shown below:

Physical stocktaking units Opening inventory Closing inventory

Finished goods 650 desks 925 desks

Work-in-progress 300 desks 160 weeks

Raw materials:
Timber 150 metres 100 metres
Varnish 16 litres 130 litres

Other data:

Purchase prices of opening raw materials for timber and varnish were N$40.00 and N$100,
respectively.

Purchases of raw materials:

Timber Varnish

5 April 100 metres @ N$45 40 litres at N$110

19 April 168 metres @N50.00 180 litres @ N$130

Value of materials issued to production:

Timber Varnish

12 April N$756 N$1 200

26 April N$13 608 N$11 300

2
 REVIEW QUESTIONS: INVENTORY VALUTION METHODS

The value of materials issued to the production has been obtained by using the following
methods of pricing material issues:

Timber – Weighted Average cost (AVCO)Method

Varnish – First-in, First-out

REQUIRED:

Calculate the quantity of timber and varnish issued on each dates shown in the question and the
consequent book-stocks of each material at the end April. Compare the closing book-stocks of
each material with the results of the physical stock count.

QUESTION 3

Mr. Fly-High started his small business of selling cotton by investing N$400 000 of his savings
into the business. He imports the cotton from China. Thereafter the cotton is dyed, printed,
finished and packed, before it is sold to a small chain retailer in Namibia.

On July 2021, a fire destroyed some of the cotton housed at Mr. Fly-High’s warehouse. He is
unsure of the amount of cotton that was destroyed, and needs to provide detailed calculations
to his insurance company.

Mr. Fly-High has asked you, his niece, studying towards your Bachelor of Accounting degree to
assist in this regard. The following information, as set out below has been provided to you:

 The inventory saved from fire amounted to N$28 800.

 The inventory balance of cotton on hand on 31 May 2021 were 200 cotton (boxes) at
N$150 each.
 The weighted-average stock valuation method is used by Mr. Fleet.
 8 June 2021: 800 boxes were purchased @US$20.00 per box. The supplier gave Mr Fly-
High a discount of 5% on this price due to early payment.

Date of Cotton Total Notes Date of Cotton Total value

receipt purchases Cost dispatch sales
(box) USD($) quantity N$
(box)
5/6/2021 400 7 200 10/6/2021 1 000 250 000
8/6/2021 800 1 15/6/2021 100
11/6/2021 900 19 000 25/6/2021 750 270 000
Notes:
1. Mr Fly-High returned 100 cotton boxes to the supplier. These cotton boxes relate
to the purchase made on 8/6/2021.

3
 REVIEW QUESTIONS: INVENTORY VALUTION METHODS

2. The relevant N$/US$ exchange rates are set out below:

N$/US$
5/6/2021 12.00
8/6/2021 11.00
11/6/2021 10.00

REQUIRED:

Advise Mr. Fly-High on the value of stock lost in the fire that should be provided to the insurance
company.