Exercises - MFRS 102 Inventories

QUESTION 1

      Hakim Global Ventures Berhad (HGV) is a company dealing with imported continental cars in Pinggiran Batu Caves. The company imported two (2) cars, Keteku and Ketemu. Before the two cars made available for sale, the company decided to modify them and the costs incurred are as below:

	Keterku	Ketermu
Purchase price	220,000	250,000
Import duties	11,000	15,000
Handling/Storage cost	25,000	20,000
Carriage cost to sell	18,000	20,000
Estimated selling price	295,000	300,000

Required:

           State if Keterku and Ketermu are items of inventories for HGV Berhad. 

          

          List THREE (3) conditions that may lead to company writing down its inventories to net realisable value. 

          

          Determine the value of cars to be disclosed in the Statement of Financial Position in accordance with MFRS 102 Inventories.  

          

QUESTION 2

      On 2 April 2018, Safuan Maju Bhd purchased 2 units of machines at a total cost of RM150,000. In addition, the company incurred installation cost of RM15,000, insurance cost of RM12,000 and transportation cost of RM8,000 for both machines. Both machines have a eight-year economic life and a total salvage value of RM25,000. The company uses straight line of depreciation on monthly basis. Safuan Maju Bhd closes its book on 31 December each year.

Required:

a)    Explain the initial cost of the machines to be recognized in the Statement of Financial Position.                                                                                      

b)    Compute the initial cost of the machines.                                              

c)    Calculate the depreciation expense for both machines as at 31 December 2018.

                                                                                                          

QUESTION 3

      Farisha Phone Services (FPS) specializes in buying and selling mobile phones in a small town in the Seri Gombak area. The company is using FIFO method in determining the cost of its inventories. Below are transactions regarding the purchases and sales of mobile phones for the month of June 2018:

Date	Transactions
June 3	Purchased 5 mobile phones at RM500 each
8	Sold 2 mobile phones at RM550 each
15	Purchased 5 mobile phones at RM510 each
20	Sold another 4 mobile phones at RM600 each

Required:

a)    List the components to the cost of inventories as prescribed by MFRS 102 Inventory.

      

b)    State whether the mobile phones are inventory of FPS in accordance with MFRS 102 Inventory.                                                                                    

c)    Prepare a Store Ledger Card to determine the value of mobile phones as at 30 June 2018 using the following format:               

                                  

Date	Receipts			Issues			Balance
	Qty	Price	Amount	Qty	Price	Amount	Qty	Price	Amount

Relevant Cost - Keep or Replace

RELEVANT COST – KEEP OR REPLACE

Faridzwan drives and owns his own taxi cab (Grab). He is considering replacing his old cab with a new more efficient hybrid model. Below is some information related to the decision.

	Old Cab RM	New Hybrid Cab RM
Original cost new	25,000	30,000
Accumulated depreciation	5,000
Salvage value	10,000
Annual operating cost	20,000	15,000

He expects both his old cab and the new hybrid cab would be useful for 6 years from now.

Required:

Determine the advantage or disadvantage of purchasing the new hybrid cab

Relevant Cost - Special Order

RELEVANT COST – SPECIAL ORDER

The Irman Corporation makes small decorative lamps. These lamps have the following cost structure.

Selling price	RM20.00
Variable cost per unit	RM13.00
Fixed cost per unit	RM3.00

The regular production is 20,000 units per month. The maximum number of lamps can be produces in the plant is 32,000 per month.

A foreign company has asked for a special order of 5,000 units at a price of RM15.00 per unit.

Required:

Should Irman Corp accept the special order? How much additional income will be materialized by taking the offer?

RELEVANT COST – SPECIAL ORDER

The Shitah Company makes special paper pants. These pants have the following cost structure.

Selling price	RM7.00
Variable cost per unit	RM3.50
Fixed cost per unit	RM1.75

The regular production is 8,000 units per month. The maximum number of pants can be produces in the plant is 10,000 per month.

A foreign company has asked for a special order of 1,000 units at a price of RM6.00 per unit. An additional shipping cost of RM1.00 per unit will be incurred of the special order is accepted.

Required:

Should Shitah Company accept the special order? How much additional income will be realized by taking the special order?

RELEVANT COST – SPECIAL ORDER

The Nsahsna makes small miniature toys from cloth. These toys have the following cost structure.

Selling price per unit	RM15.00
Direct material per unit	RM4.00
Direct labour per unit	RM1.80
Variable overhead per unit	RM1.20
Fixed overhead per unit	RM1.00
Variable selling expenses per unit	RM1.50

A foreign company has asked for a special order of 500 units at a price of RM10.00 per unit. Nshasna has the excess capacity to complete this special order withour impacting regular production. No selling expenses will be incurred for the special order.

Required:

Should Nsahsna accept the special order? How much additional income will be realized by taking the special order?

RELEVANT COST – SPECIAL ORDER

Kathy Company manufactures and selss a single product called a Yow. Operating at capacity, the company can produce and sell 45,000 Yows per year. Cost associated with this level of production and sales are as follows:

	Per Unit RM	Total RM
Direct materials	22	990,000
Direct labour	12	540,000
Variable manufacturing overhead	4	180,000
Fixed manufacturing overhead	14	630,000
Variable selling overhead	8	360,000
Fixed selling overhead	9	405,000
Total Cost	69	3,105,000

The Yows normally sell for RM75 each. Fixed manufacturing overhead is constant at RM630,000 per year within the range of 35,000-45,000 Yows per year.

Required:

Next year, Kathy Company expect to sell only 40,000 Yows. A large retail chain has offered to purchase 5,000 Yows if Kathy is willing to accept a 20% discounts from the regular price. There would be no sales commission on this order, and thus, variable selling expenses would be slashed by 75%. However, Kathy Company would have to purchase a special machine to engrave the retail chain’s name on the 5,000 units. This machine would cost RM40,000. The company has no assurance that the retail store would purchase additional units at any time in the future. Determine the impact on profits next year if the special order is accepted. (Show your workings)

Relevant cost - Make or Buy

RELEVANT COST – MAKE OR BUY

The MotorGo Corporation makes steering wheel covers for cars. These steering wheel covers have the following cost structure.

Units produced	5,000 units
Variable cost per unit	12.00
Fixed cost per unit	4.00

The Auto Fun Corporation has offered to make the steering wheel covers for RM15.00 each. If the offer is accepted, the variable costs will be eliminated but the fixed costs will remain.

Required:

Should MotorGo accept the offer? How much additional income will be materialize by taking the offer?






RELEVANT COST – MAKE OR BUY

Teha Kasut manufactures a variety of athletic shoes. The company always produced all necessary parts for its shoes, including laces. Lita Tali, an outside supplier has offered to produce and sell laces to Teha Kasut at a cost of RM0.20 per lace.

To evaluate this offer, Teha Kasut has gathered the following information relating to its own cost of producing laced internally:

	Per Unit RM	26,000 laces per year RM
Direct materials	0.06	1,560
Direct labour	0.07	1,820
Variable manufacturing overhead	0.02	520
Fixed manufacturing overhead, traceable	0.03	780
Fixed manufacturing overhead, allocated	0.06	1,560
Total Cost	0.24	6,240

One-third of the traceable fixed manufacturing overhead relates to supervisory salaries. The supervisor would be fired if Teha Kasut chose to purchase from outside supplier. Two-thirds of the traceable fixed manufacturing overhead relates to depreciation of lace-making equipment that has no resale value.

Required:

1. Assuming that the company has no alternative use for the facilities that are now being used to produce the laces, should the outside supplier’s offer be accepted? (Show your workings)
2. Suppose that if the laces were purchased, the company could use the freed capacity to make a new product. The segment margin of the new product is expected to be RM1,000 per year. Should the company accept the offer to buy the laces for RM0.20 per lace? (Show your workings)

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