Timbatown Pty Ltd is the distributor of timber tables and chairs. Company mainly sells on a retail basis to household consumers, but occasionally receives large orders for tables and chairs from schools and businesses. Management uses the first-in-first-out inventory assumption, despite the inventory cost being fairly stable throughout the year. As each item is ready, it is stamped underneath with the batch number and cost code. Information about inventory for the past month is presented below:
In stock at 1 June 2012:
26 tables Costs: Purchase price : $440 per table (GST inclusive)
Assembly: $197 per table (GST exclusive)
Insurance in Tra nsit $44 per table (GST inclusive)
Freight in: $22 per table (GST inclusive)
94 chairs Costs: Purchase price: $110 per chair (GST inclusive)
Assembly: $112 per chair (GST exclusive)
Freight in: $22 per chair (GST inclusive)
During June 2012, the following tables and chairs were produced:
35 tables Costs: Purchase price: $396 per table (GST inclusive)
Assembly: $197 per table (GST exclusive)
Insurance in Transit $44 per table (GST inclusive)
Freight in: $22 per table (GST inclusive)
116 chairs Costs: Purchase price: $99 per chair (GST inclusive)
Assembly: $112 per chair (GST exclusive)
Freight in: $22 per chair (GST inclusive)
The following sales were recorded during June 2012:
40 tables @ $990 each (GST inclusive)
120 chairs @ $330 each (GST inclusive)
Stock-take on 30 June 2012 revealed that two tables and eight chairs were scratched. Their selling price would require to be reduced to $660 and $165 respectively (GST inclusive). All other items in stock will be sold at the retail price charged during June. The business has a special offer where free delivery is included with every sale. Standard delivery cost is $22 per item (GST inclusive).
Required:
a) Prepare a partial income statement for June (down to gross profit). Show all workings.
b) Prepare the general journal entry(ies) to record any inventory write down.
c) Find out the value of each type of inventory at 30 June 2012 in accordance with AASB 102 Inventories. Justify all parts of the answer and show calculations.
d) Timbatown Pty Ltd uses the first-in-first-out assumption for its inventory. Comment on whether you think the alternative approaches of specific identification or average cost can be used by Timbatown Pty Ltd instead of first-in-first-out.