Reference no: EM132977741

Question - Lorenzo LtdPurchase Shipment 2 5,000 units, invoice purchase cost $250 for each handbag imports leather handbags from Italy. On 1 July 2019 it had 2,500 units in stock at a total cost of $200 per unit. During the year ended 30 June 2020 four shipments of leather handbags were received as follows:

Purchase Shipment 1 5,000 units, invoice purchase cost of $200 for each handbag

Purchase Shipment 3 10,000 units, invoice purchase cost $300 for each handbag

Purchase Shipment 4 10,000 units, invoice purchase cost $350 for each handbag

Lorenzo Ltd is charged an additional $50 freight inwards for each leather handbag. Each handbag is shipped from the supplier in individual protective boxes that cost $10 per box

On 30 June 2020 a physical stocktake indicated 25,000 units on hand.

The latest recommended wholesale selling price of leather handbags is $500 per unit.

Inspection of the handbags on hand in the warehouse revealed 4,000 that were water damaged and could now only be sold for $360. Total additional costs of repackaging and distribution to customers for these damaged handbags are $25 per unit.

Ltd uses the weighted average cost flow method.

(a) Briefly explain why Lorenzo Pty Ltd uses the weighted average cost flow method for its handbags and not the FIFO cost flow method.

(b) Calculate the value of total closing inventory at 30 June 2020 as provided for in AASB 102. Show all workings and Justify all calculations.