What amount should the rods be reported

Reference no: EM132704631

Question - Pumicestone Ltd sells a range of fishing equipment including rods, reels, hooks, lines and sinkers through its website. On 1 January 2020, the company purchased 1,000 units of a particular model of fishing rod from Rods R Us Ltd and the following costs were incurred in relation to the purchase:

Purchase price from supplier $72,500

Federal import taxes $8,750

Freight costs to deliver to company's warehouse $6,500

Modification costs prior to sale $11,500

Cost of radio and fishing magazine advertising $8,600

Expected costs of delivery of rods to customers $15,900

Unfortunately, this particular model of fishing rod is not very popular with fishermen and the company still has 950 of the rods left on hand on 30 June 2020. One of the company's competitors has offered to purchase these rods in July 2020 for $105 per rod. As part of the sale agreement, Pumicestone Ltd would incur $6,250 of freight costs to deliver the rods to the competitor.

Required -

(a) Calculate the total cost of the 1,000 fishing rods purchased on 1 January 2020. (Show your calculations to support your answer).

(b) What amount should the 950 rods be reported in the balance sheet as inventory as at 30 June 2020? Explain your answer, including any necessary calculations. (Note: The total cost of these rods should be calculated as a proportion of the total cost of the 1,000 rods calculated in part (a)).

Reference no: EM132704631

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