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WEEK 12.  Goods bought or manufactured for resale but unsold ◦ Timing difference between production capacity and customer demand  Valuation is the lower.

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Presentation on theme: "WEEK 12.  Goods bought or manufactured for resale but unsold ◦ Timing difference between production capacity and customer demand  Valuation is the lower."— Presentation transcript:

1 WEEK 12

2  Goods bought or manufactured for resale but unsold ◦ Timing difference between production capacity and customer demand  Valuation is the lower of cost or net realisable value ◦ Affects Income Statement & Balance Sheet  Cost includes all costs of purchase or manufacture to bring inventory to its present location and condition

3  Inventory 1.Raw materials – pre-production 2.Work in progress - uncompleted 3.Finished goods – manufactured or purchased and ready for sale

4

5

6  Differentiated products: segregated or not interchangeable – specifically identifiable, e.g. a vehicle to a car dealer ◦ Actual cost for each item  Similar/undifferentiated products ◦ Weighted average ◦ FIFO (first in, first out) ◦ LIFO (last in, first out)

7 A product is purchased on three separate occasions: UnitsUnit priceTotal cost 5,000$1.20$6,000 2,000$1.25$2,500 3,000$1.27$3,810 Calculate the cost of 6,000 units sold and the value of inventory

8 Units Unit price Total cost 5,000$1.20$6,000 2,000$1.25$2,500 3,000$1.27$3,810 10,000 $12,310  The weighted average cost is $12,310/10,000 = $1.231 per unit.  The cost of goods sold is 6,000 @ $1.231 = $7,386  The value of inventory is 4,000 @ $1.231 = $4,924

9 UnitsUnit priceTotal costCost of sales 5,000$1.20$6,0005000@$1.20=$6,000 2,000$1.25$2,5001000@$1.25=$1,250 3,000$1.27$3,810 6000 $7,250 UnitsUnit priceTotal cost Inventory value 5,000$1.20$6,000 2,000$1.25$2,5001000@$1.25= $1,250 3,000$1.27$3,8103,000@$1.27=$3,810 4,000 $5,060 Total $12,310

10 UnitsUnit priceTotal costCost of sales 5,000$1.20$6,0003000@$1.27=$3,810 2,000$1.25$2,5002000@$1.25=$2,500 3,000$1.27$3,8101000@$1.20 =$1,2001000@$1.20 6000 $7,510 UnitsUnit priceTotal cost Inventory value 5,000$1.20$6,000 2,000$1.25$2,5004000@$1.20=$4,800 3,000$1.27$3,810 Total $12,310

11 If 6,000 units sold @ $2.00 Sales$12,000 Cost of sales (WAM) 7,386 Gross profit 4,614 Sales$12,000 Cost of sales (FIFO) 7,250 Gross profit 4,750

12 Calculate COGS with: 1. FIFO ( Perpetual & Periodic) 2. LIFO ( Perpetual & Periodic) 3. Average ( Perpetual & Periodic) Details TGLUnitshargaTotalUnits dijual Beginning inventory 1/1/06 200$2$400 purchase15/1/06 300$3$900 Sales17/1/06250 Purchase28/1/06 500$4$2 000 Sales30/1/06400

13 Helo Pty Ltd manufactures components for helicopters. It does so in batches of 100 components. Each batch requires 500 kgs of rolled and formed steel, which takes 15 hours of labour. Transactions for the month:  Purchase of steel 1,000kgs @ $12/kg  Issue of steel to production 500 kgs  Direct labour to roll and form 500 kgs steel 15 hours @ $125/hour  Overhead allocated at completion of production of 100 components $2,000.  60 of the components manufactured in the batch were sold for $130 each.  At month end, 500 kgs of steel has been issued to production and 7 hours have been worked. The job is incomplete.  Calculate the value of work in progress at month end.

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