The board of directors of Amer Bhd is considering whether it should instruct the accounting department to change its inventory cost flow assumptions from First-in-First-out (FIFO) basis to an average costs

Subject:AccountingPrice:3.86 Bought8

Share With

The board of directors of Amer Bhd is considering whether it should instruct the accounting department to change its inventory cost flow assumptions from First-in-First-out (FIFO) basis to an average costs. The following information has been extracted from the records of Amer Bhd about its products; Viral15. Amer Bhd uses perpetual inventory system and its reporting period ends on 30 June. The following information related to an inventory; Viral15: 

 

Date Particular Unit Purchase Price RM/Unit Selling Price RM/Unit

 

01/07/19 Beginning balance 4,000 80.00

06/08/19 Purchased 1,500 80.50

05/09/19 Sold 5,000 123.00

19/11/19 Purchased 10,000 77.50

24/11/19 Purchase returns 550 77.50

30/05/20 Sold 9,200 122.50 

 

REQUIRED:

 

(Round all figures to TWO (2) decimal points)

 

(a) Calculate the cost of inventory on hand as at 30 June 2020 and the cost of sales for the year ended 30 June 2020, using:

(i) the FIFO cost flow assumptions. (ii) the moving average cost flow assumptions. 

 

(b) It is expected that the purchase cost of inventory will keep increasing. If Amer Bhd wants to minimize the income in order to pay least tax, suggest cost flow assumptions (FIFO or average cost) that is more relevant. Justify your answer.