INVENTORIES – Part 3

These questions were adapted from the FRK201 material

QUESTION 3 (Tutorial)

ME-POD LIMITED manufactures and sells portable ‘MP3 players’. Me-Pod Limited’s
financial year end is 30 June.

The following information is applicable to the inventories of Me-Pod Limited for the
year ended 30 June 20X9:

Normal capacity (‘MP3 players’) 130 000

Fixed overheads allocated (R80 per unit) R10 000 000
Finished ‘MP3 players’ on hand (01/07/20X8)
(30 000 units) R9 000 000
Finished ‘MP3 players’ on hand (30/06/20X9) 12 000
Direct labour R6 250 000
Variable manufacturing overheads R2 515 000
Fixed manufacturing overheads incurred (based on normal
annual production) R10 400 000
Raw materials on hand (01/07/20X8) (220 000 units) R7 700 000
Raw materials on hand (30/06/20X9) 293 000 units

Additional information:

1. The entity uses the perpetual inventories system.

2. Finished products are valued according to the first-in, first-out method and raw
materials are valued according to weighted average method.

3. Due to the global economic turmoil, Me-Pod Limited’s main supplier in the USA
was unable to meet Me-Pod Limited’s raw material requirements during the year.
Therefore Me-Pod Limited had to find alternative raw materials from a variety of
local suppliers.

Raw materials purchased during the year:

Date Quantity (units) Price per unit Total

27 December 20X8 325 000 R44,14 R14 345 500
30 April 20X9 160 000 R32,75 R5 240 000
15 June 20X9 65 000 R52,15 R3 389 750

The following quantities raw materials were issued to production during the year:

Date of issue Quantity (units)

15 October 20X8 88 000
 2

6 March 20X9 267 000

28 May 20X9 122 000

4. There is no opening or closing work-in-progress for the years ended 30 June 20X8
and 30 June 20X9.

5. During the year ended 30 June 20X9, Me-Pod Limited sold 143 000 ‘MP3 players’.

6. The company has experienced strong competition from similar imported products.
This caused the net realisable value of a ‘MP3 player’ to decrease to R290 per unit
by the end of the 20X9 reporting period.

REQUIRED:

a) Disclose the “Inventories” note to the annual financial statements of Me-Pod

Limited for the year ended 30 June 20X9, in accordance with Statements of
Generally Accepted Accounting Practice.

Note: - Round final calculated amounts to the nearest R1.

- Comparative amounts are not required.
- Accounting policy notes are not required.
- Assume all amounts are material.
- Show all calculations.

b) Calculate the amount of the “Cost of sales” line item in the statement of
comprehensive income of Me-Pod Limited for the year ended 30 June 20X9, in
accordance with Statements of Generally Accepted Accounting Practice.

Note: - Round final calculated amounts to the nearest R1.

- Comparative amounts are not required.
- Assume all amounts are material.
- Show all calculations.

RRP100 IAS 2