Timbatown Pty Ltd is a manufacturer of timber tables and chairs. The company mostly sells on a retail basis to household consumers, but occasionally receives large orders for tables and chairs from schools and businesses. Management uses the first-in-first-out inventory assumption, despite the inventory cost being fairly stable throughout the year. As each item is manufactured, it is stamped underneath with a batch number and cost code. Information about inventory for the past month is presented below:
In stock at 1 June 2012:
26 tables Costs: Materials $440* per table
Labour: $197 per table
Overheads: $66* per table
94 chairs Costs: Materials $110* per chair
Labour: $112 per chair
Overheads: $22* per chair
During June 2012, the following tables and chairs were produced:
35 tables Costs: Materials $396* per table
Labour: $197 per table
Overheads: $66* per table
116 chairs Costs: Materials $99* per chair
Labour: $112 per chair
Overheads: $22* per chair
*Costs associated with manufacture are GST inclusive.
The following sales were recorded during June 2012:
40 tables @ $990 each (GST inclusive)
120 chairs @ $330 each (GST inclusive)
A stock-take on 30 June 2012 revealed that two tables and eight chairs were scratched. Their selling price would need to be reduced to $660 and $165 respectively (GST inclusive). All other items in stock would be sold at the retail price charged during June. The business has a special offer where free delivery is included with each sale. The standard delivery cost is $22 per item (GST inclusive).
Required:
(a) Prepare a partial income statement for June (down to gross profit). Show all workings.
(b) Prepare the general journal entry(ies) to record any inventory write down.
(c) Determine the value of each type of inventory at 30 June 2012 in accordance with AASB 102 Inventories. Justify all parts of your answer and show calculations.
(d) Timbatown Pty Ltd uses the first-in-first-out assumption for its inventory. Comment on whether you think the alternative approaches of specific identification or average cost could be used by Timbatown Pty Ltd instead of first-in-first-out.