Question 3 Fuel Pumps Ltd makes one standard product. You have been given the fo

Question

Question 3 Fuel Pumps Ltd makes one standard product. You have been given the following A. The inventory sheets at the year-end show the following items: £ Unit Raw Materials: 100 tonnes of steelCost 100 Per tonne 140 Per tonne Present price Finished goods: 100finished pumps Cost of materials Labour costs Selling price 50 Per unit 150 Per unit 500 Per unit 40 semi-finished goods Cost of materials Labour costs to date Selling price 50 Per unit 100 500 Per unit 5° Per unit (completed) 10 damaged finished units Costs to rectify damage 200 Per unit 300 Selling price 500 Per unit (when rectified) B. Manufacturing overheads are 100% of labour cost. Selling and distribution expenses are £60 per unit (mainly sales people's commission and freight charges) Required From the information above, state the amounts to be included in the balance sheet of Fuel Pumps Ltd. in respect of inventory. State also the principles you have applied. 0ox (00100

Explanation / Answer

Inventory is measured at cost or net realisable value( selling price- costs to complete) whichever is lower.

Raw Materials Finished goods Semi finished goods Damaged goods Cost: Units 100 100 40 10 Per unit costs: Cost 100 50 50 50 Labor 0 150 100 150 Manufacturing OH 0 150 100 150 Total per unit cost 100 350 250 350 Total cost 10000 35000 10000 3500 Net realisable value: Selling price 140 500 500 500 Less: Selling expenses 0 -60 -60 -60 Cost to rectify -200 NRV per unit 140 440 440 240 Total NRV 14000 44000 17600 2400 Inventory value 10000 35000 10000 2400 Measurement at Cost Cost Cost NRV

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