Cost and management

Assignment #2_Inventory Valuation Page 1

UNIVERSITY OF THE WEST INDIES

OPEN CAMPUS

ACCT1003 (MS 15B) - Introduction to Cost & Management Accounting Semester II_2017/2018

Assignment #2- Mini Case/Problem (Individual Assignment)

This assignment is centred on the topic “Inventory Valuation” which is covered in Unit 3 & speaks to the following objectives: Course Objectives:

1) Given a set of transactions of a merchandiser for a specified period, prepare an inventory record to determine the value of ending inventory & cos of goods sold

2) Demonstrate how sales returns & purchases returns are treated in the inventory record and how they impact the income statement

3) Prepare an income statement for a merchandising entity 4) Use journal entries to demonstrate the difference between a perpetual & a periodic inventory

system 5) Use the gross profit method to determine the value of ending inventory for insurance purposes

You are required to submit this assignment by Thursday, 15th March, 2018 by 11:30 p.m. EC Time. (10:30 pm Jamaica Time) This assignment will account for 10% of your overall mark. You are required show ALL supporting workings where necessary and state any assumption(s) made.

Specifications:

MS Word or Excel Document (97-2003 Version) Font Size 12

Please remember to check the Coursework Accountability Statement box upon submission of your assignment.

Assignment #2_Inventory Valuation Page 2

Part a

VenRam Stationery & Supplies sells a variety of school supplies including a variety of calculators. The business began the first quarter (January to March) of 2018 with 20 (Casio fx-85MS) calculators at a total cost of $124,800. During the quarter, the company completed the following transactions.

January 8 105 calculators were purchased at a cost of $5,840 each. In addition the business paid a freight charge of $610 cash on each calculator to have the inventory shipped from the point of purchase to their warehouse.

January 31 The sales for January were 85 calculators which yielded total sales revenue of $767,550. ( 25 of these units were sold on account to longstanding customers)

February 4 A new batch of 65 calculators was purchased at a total cost of $448,500

February 10 10 of the instruments purchased on February 4 were returned to the supplier, as they were not of the model ordered.

February 28 During the month 58 calculators were sold at a price of $9,660 each.

March 4 A customer, to whom 9 calculators were sold during the first business day of February, returned 2 of the instruments, as they were of another brand.

March 10 Owing to an increased demand, a further 118 calculators were purchased at a cost of $7,500 each; these were subject to a trade discount of 2% each.

March 31 125 calculators were sold during March at a unit selling price of $10,300.

March 31 An actual count of inventory was carried out which revealed that there were 28 units of that brand of merchandise in the store room.

Unless otherwise stated, assume that all purchases were on account and received on the dates stated.

Required:

i) Prepare a perpetual inventory record for this merchandise, using the first in, first out (FIFO) method of inventory valuation to determine the company’s cost of goods sold for the quarter and the value of ending. (20 marks)

ii) Given that selling, distribution and administrative costs for the quarter were $112,840, $102,100 and $103,760 respectively, prepare an income statement for VenRam Stationery & Supplies for the quarter ended March 31, 2018. (6 marks)

iii) Journalize the January transactions, assuming the company uses a: - Periodic inventory system

- Perpetual inventory system (7 marks)

iv) The manager of VenRam has stated that his objective is to cut back on his tax liability and is of the view that the FIFO method would be best. Do you agree with him? (3 marks)

Part b

Callahan Computers stores its inventory in a warehouse that was destroyed by Hurricane Irma in September 2018. The business began the year with inventory of $350,000. During the year, the business made net purchases of $1,600,000 and had net sales of $2,500,000. The company’s gross profit has historically been 30% of net sales revenue. Use the gross profit method to estimate the cost of the ending inventory destroyed in the hurricane. (4 marks)

Assignment #2_Inventory Valuation Page 3

Rubrics

Criteria Value

Understanding

 The solution completely addresses all mathematical components presented in the task.

 Excellent understanding of the problem. (4)

 The solution addresses all mathematical components presented in the task.

 Understands the problem. (3)

 The solution addresses some but not all of the mathematical components presented in the task.

 Minimal understanding of the problem (2)

 The solution addresses none of the mathematical components presented in the task.

 Attempts but demonstrates no understanding of the problem (1)

4

Computation

Thorough analysis of the

problem with accurate

solutions

Analysis of the problem is

evident, considerable

accuracy.

Analyses the problem

with some success, but

accuracy needs to

improve.

Very little evidence of

analysis. Accuracy is

weak. Evidence of

guessing.

40

(See

Suggested

Solution)

Procedures/Algorithm Applies procedures

accurately to correctly

solve the problem. (4)

Some mathematical

procedures are used. (3)

Could not completely

carry out mathematical

procedures (2)

No evidence of

mathematical reasoning

(1)

4

Presentation Work is clearly

organized and includes a

step-by-step analysis (2)

(Required specifications

are met)

Work demonstrates some

organization(1½)

Disorganized approach

to the problem (1)

Lacks organization and

thought(½)

2

Total 50