Help with an inventory cost per unit

heatherr9088

Hi I need help.
I’m completing the aat mock exam and on the inventory valuation section.
You need to work out the cost per litre for 15th March but I can not need to figure out how to do this as I don’t have the total cost.the other one was fine as just divide 24000/15000.

If someone could help be most appreciated.

LeapyUK

Hello Heather,

First of all, we can look at the Balances. You had 20,000 litres at a cost of £25,000 on the 1st March. You can work out the cost per litre of these which is 25000/20000=£1.250 (the question asks for answers to THREE decimal places, so remember to add the extra 0 to cost per litres). Then you received 15,000 litres at a total cost of £24,000 which already tells you the cost per litre of £1.600 (24000/15000). So the balances on the right is now that you have 35,000 litres in total in your inventory and the total cost of these is £49,000. Your balance is updated.

It states in the question that the company uses FIFO. So we need to issue 25,000 litres using First In First Out. So we will be using the oldest inventory and working downwards.

So, we need to issue 25,000 litres using FIFO so we will go:

(From 1st Match inventory)..
20,000 x £1.250 = £25,000

Now, we only need 5,000 litres to get the 25,000 litres we want to issue. So we take 5,000 litres from the next load of inventory.

(From 10th March inventory)
5,000 litres x £1.600 = £8000.

The total cost of the issue is £25,000 + £8,000 = £33,000. We can place that answer under the Total cost in the issues.

Now calculate £33,000/25,0000 litres = £1.320 cost per litre (remember its THREE decimal places in this question).

Then you are left with 10,000 litres in your balance which you have correctly entered, and £49,000-£33,000 issues leaves £16,000 closing inventory in your balance at 15th March.

For LIFO, work from the 10th March inventory upwards to the 1st March.

For AVCO, divide your average latest balance (49,000/35,000) = £1.400 per litre, then you'd calculate 25,000 issues x £1.400 cost per litre = £35,000 cost of issue. Then the closing inventory would be £49,000 (latest balance) - AVCO issue = £14,000 closing balance for AVCO.

Hope this helps!

heatherr9088

Hello.
Yes it does thank you so much!!