Reference no: EM132970327
On 1 June 2021, Wired for Sound, a retailer and installer of car stereo systems, commenced trading. By 1 July 2021, the business had 20 Stereo system on hand that was purchased for $462 each, including GST.
The following transactions occurred during the second two months of operations:
JULY
4th - Purchased 12 stereo systems at cost of $495 (GST Inclusive) each
7th - Sold and installed 8 stereo systems for $1045 (GST Inclusive) each.
12th - Returned 2 defective systems purchased on 4 July.
18th - Purchased 15 stereo systems at a cost of $500.50 (GST Inclusive) each.
25th - Purchased 6 stereo systems at a cost of $555.50 (GST Inclusive) each.
AUGUST
5th - Sold and installed 14 systems for $1056 (GST Inclusive) each.
9th - Sold and installed 16 stereo systems for $1089 (GST Inclusive) each.
15th - One of the customers from the August 9 sales, was not happy with 3 of their stereo system and had returned them. The items were not defective.
21st - Purchased 15 stereo systems at for $616 (GST Inclusive) each.
24th - During one of the installations, one of the technicians identified three of the stereo systems was faulty. These systems were from the purchase on 21 August. The manager contacted the Company, returned the faulty systems, and received a credit to the business's account.
27th - Sold and installed 18 stereo systems for $1100 (GST Inclusive) each.
30th - Purchased 35 stereo systems at a special price of $467.5 (GST Inclusive) each.
Other expenses for the month of July and August 2021 totalled to $12,320 (GST Inclusive).
Problem (a) Record the information on a perpetual inventory record using each of the following methods:
- FIFO
- moving average
- LIFO.
Problem (b) Prepare an Income Statement based on each of the three methods of inventory cost flow calculations from part a. You are required to include the details of Cost of sales calculation.
Problem (c) Provide a rationale to the manager of Wired for Sound for the variation in the values for the cost of sales and net profit presented under each method in the Statement of Profit or Loss.
Problem (d) List the factors that management should consider when choosing an inventory cost flow method. Which method do you recommend is the most appropriate for adoption by Wired for Sound?