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3 KHEWRA MANUFACTURING
Khewra Manufacturing was formed on 1 January 2015. The entity manufactures and sells a
single product and values it on a first-in, first-out basis.
One tonne of raw material is processed into one tonne of finished goods.
The following details relate to 2015.

Purchases of raw materials


Purchases: 1,000 tonnes of raw materials per week
Price: Rs.100,000 per tonne on 1 January, increasing to
Rs.150,000 per tonne on 1 July
Import duties: Rs.10,000 per tonne
Transport from docks to factory: Rs.20,000 per tonne

Production costs
Production capacity: 1,500 tonnes per week
Variable costs: Rs.25,000 per tonne
Fixed costs: Rs.30,000,000 per week

Sales details
Selling price: Rs.240,000 per tonne
Delivery costs to customers: Rs.8,000 per tonne
Selling costs: Rs.4,000 per tonne

Inventories at 31 December 2015


Raw materials: 2,000 tonnes
Finished goods: 2,000 tonnes
There is a ready market for raw materials and the NRV of the raw materials is higher than its cost.

Required
Calculate and disclose the value of inventories at 31 December 2015 in accordance with IAS2.

1.6 NKL ENTERPRISES


NKL Enterprises produces a single product. On July 31, 2015, the finished goods inventory
consisted of 4,000 units valued at Rs. 220 per unit and the inventory of raw materials was worth
Rs. 540,000. For the month of August 2015, the books of account show the following:
Rupees
Raw material purchases 845,000
Direct labour 735,000
Selling costs 248,000
Depreciation on plant and machinery 80,000
Distribution costs 89,560
Factory manager‘s salary 47,600
Indirect labour 148,000
Indirect material consumed 45,000
Other production overheads 84,000
Other accounting costs 60,540
Other administration overheads 188,600
Other information:
(i) 8,000 units of finished goods were produced during August 2015.
(ii) The value of raw materials on August 31, 2015 amounted to Rs. 600,000.
(iii) There was no work-in-progress at the start of the month. However, on August 31, the value
of work-in-progress is approximately Rs. 250,000.
(iv) 5,000 units of finished goods were available in inventory as on August 31, 2015.

Required:
Compute the value of closing inventory of finished goods as on August 31, 2015 based on
weighted average cost method
.
1.12 KIDS PARTY & COMPANY
Kidz Party & Co. (KPC) manufactures and sells toys. Following information is available regarding
four of its inventory items as on 31 December 2017:

Cost per unit Normal selling price


Items Units
(Rs.) per unit (Rs.)
Toy cars 10,000 1,250 1,200
Doll houses 5,000 1,800 2,700
Stuffed toys 1,850 1,200 1,900
Minion costumes 870 1,500 2,500

Following information is also available:


(i) A sales order for 3,000 toy cars @ Rs. 1,100 per unit is in hand. The remaining units can
be sold at normal selling price after incurring selling cost of Rs. 150 per unit.
(ii) Doll houses include 1,000 defective units with no scrap value. 20% of the remaining doll
houses are damaged and can be sold at 50% of cost.
(iii) Stuffed toys costing Rs. 420,000 were accidentally damaged and are beyond repair. KPC
plans to sell these toys as scrap. Proceeds from such sale are estimated at Rs. 175,000
and the sale would require transportation cost of Rs. 6,300.
(iv) All minion costumes have manufacturing faults and can be sold in present condition at Rs.
1,350 per unit. However, 60% of the units can be rectified at a cost of Rs. 200 per unit
after which they can be sold at Rs. 1,600 per unit.
Required:
Calculate the amount at which above inventory items should be carried as on 31 December 2017
in accordance with IAS 2 ‗Inventories‘.
1.13 NAWAZ MANUFACTURING LIMITED
Nawaz Manufacturing Limited (NML) deals in various products. One of its product B2 is
produced using raw material A1. Production is carried out after receiving confirmed sales
order. Following information is available for the month of January 2017:
(i) Opening inventory of A1 was 200 kg @ Rs. 3,000 per kg.
(ii) Details of purchases made during the month ended 31 January 2017 are as follows:

Date Quantity (kg) Price per kg (Rs.)


1-Jan-17 250 2,800
15-Jan-17 250 2,900
50 kg of A1 purchased on 15 January 2017 were returned to the supplier on 16 January
2017
due to inferior quality of material supplied.
(iii) On 18 January 2017, 100 kg of A1 were destroyed. They had no scrap value.
(iv) Under normal circumstances 500 kg of A1 produce 400 liters of B2.
(v) Labour cost per liter of B2 was Rs. 700.
(vi) Overheads are estimated at 120% of labour cost. The actual overheads for the month were
Rs.
275,000.
(vii) There is no opening and closing work in progress.
(viii) Sales of B2 during the month of January were as follows:

Quantity Sales price per


Sale order date Delivery date liter (Rs.)
(liters)
2-Jan-17 4-Jan-17 100 7,000
26-Jan-17 28-Jan-17 160 6,250

(ix) NML uses weighted average method for valuation of inventory.

Required:
Prepare cost of goods sold statement for the month of January 2017 under each of the
following methods:
(a) Perpetual inventory method
(b) Periodic inventory method

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