Answered: ) One of the managers of the business…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter2: Basic Cost Management Concepts

Section: Chapter Questions

Problem 18E: Lakeesha Barnett owns and operates a package mailing store in a college town. Her store, Send It...

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Question

(D) One of the managers of the business has indicated that his main objective is to cut back on his tax
liability as much as possible and is of the view that the FIFO method would be best. Do you agree
with him? Explain your answer clearly, with reference to the most popular methods of inventory
valuation.

(E) Universal Enterprise sells a product that cost $450 per unit and has a monthly demand of 5,000
units. The annual holding cost per unit is calculated as 5% of the unit purchase price. It costs the
business $75 to place a single order. Currently the business places 12 orders each year.
i) What is the total stock administrative cost of Universal’s current inventory policy?
ii) Is this the entity’s cost minimizing solution for this product each year? Explain.

Transcribed Image Text:Sim-Jo-La Electronics sells a variety of electronic devices including a variety of WIFI SMART camera bulbs. The business began the second quarter (April to June) of 2020 with 15 (V380PRO) camera bulbs at a total cost of $108,750. The following transactions relating to the “V380PRO" camera bulbs were completed during the quarter. |April 7 90 bulbs were purchased at a cost of $6,850 each. In addition, the business paid freight charges of $800 cash on each bulb to have the inventory shipped from the point of purchase to their warehouse. April 30 The sales for April were 75 bulbs which yielded total sales revenue of $803,250. (15 of these bulbs were sold on account to longstanding customers of the business) Мaу 6 A new batch of 8o bulbs was purchased at a total cost of $654,800 |Мay 9 Upon inspection of the bulbs purchased on May 6, five (5) of the units were found to be defective and were returned to the supplier. Maу 31 During the month 62 of the camera bulbs were sold at a price of $11,450 each. June 5 A customer, to whom 7 of the bulbs were sold during the first business day of May, returned 3 units of the merchandise, as they were of another make & model. June 14 Owing to an increased demand, a further 110 bulbs were purchased at a cost of $9,000 each; the supplier gave a 3% quantity discount on the purchase. June 30 116 bulbs were sold during June at a unit selling price of $12,250. June 30 An actual count of inventory was carried out at the close of business which revealed that there were 36 units of the V380PRO brand of merchandise in the store room. Unless otherwise stated, assume that all purchases were on account and received on the dates stated.

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