2020 SASS 3E POA EOY P2 Q3
3 Ethan is a young graduate who started an online business selling gifts. He is looking at selling wireless earphones as one of his gift items for Christmas. Due to limited funds, he has to decide between Jbuds or Air Pod.
The following information is available.
Jbuds | Air Pod | |
Price | $50 per unit Gross profit is estimated to be $10 per unit. | $250 per unit Gross profit is estimated to be $35 per unit |
|
| |
Warranty (by manufacturers) | 6 months | 1 year |
Customer’s preference | Popular with working adults | Popular with youths |
REQUIRED
a. Advise Ethan which wireless earphone he should choose. Justify your decision with three reasons.
[7]
Ethan’s family owns SKY Computer, a retailer of laptops. The business uses the FIFO (First In First Out) method of inventory valuation. On 28 February 2020, the business had 120 SKY laptops costing $800 per unit.
The following transactions took place during March 2020.
Inventory purchases
Date | Number of laptops | Cost per unit |
Mar 4 | 50 | $820 |
8 | 50 | $800 |
10 | 100 | $850 |
18 | 200 | $900 |
23 | 180 | $920 |
25 | 50 | $950 |
Inventory sold
Date | Number of laptops | Selling Price per unit |
Mar 12 | 170 | $1 500 |
15 | 150 | $1 750 |
28 | 380 | $1 800 |
REQUIRED
b. Calculate the total cost of sales for March 2020.
[2]
c. Calculate the value of inventory at 31 March 2020.
[1]
After the valuation on 31 March 2020, it was discovered that the batch of laptops purchased on 25 March 2020 need to be upgraded in order to be sold. The net realisable value of these laptops was agreed to be $750 per laptop.
REQUIRED
d. Calculate the revised value of inventory at 31 March 2020.
[1]
Explain the accounting theory which is applied when valuing inventory.
[2]
[TOTAL 15]
A Decision which is supported by reasons
Maximum of 3 reasons to support their decision. Each reason should comprise of
1 basic statement for 1 mark which is then developed for an additional 1 mark
Total 6 marks for discussing 3 reasons. 7
Examples of basic statements and development. Decision: sell Air pod
Gross profit for selling air pod is $35 per unit which is higher than Jbud of $10. (basic statement)
The business will make a higher profit of $25 per unit from selling air pod than selling Jbuds,
( development)
Sweat & water resistant, with Hey Siri (basic statement) . These features will be popular with
youths who are usually active and more tech savy. (development)
1 year warranty (by manaufacturers) (basic statement). The warrranty for air pod
is 6 months more than Jbuds
| no of laptop | unit cost | total cost |
| 120 | 800 | $96,000 |
| 50 | 820 | $41,000 |
| 50 | 800 | $40,000 |
| 100 | 850 | $85,000 |
| 200 | 900 | $180,000 |
| 180 | 920 | $165,600 |
| $607,600 |
50 x $950 = $47500
50x$750=$37500
Prudence theory-
understate profit and assets when in doubt by adjusting for possible losses