Question

Zoulman Bhd is a commercial company that trades in wooden products. The main products are wooden tables, windows and cupboards. Since its incorporation, the demand for the company products is high so the company expects better sales growth in the future. However, in this year 2019, the company experienced a pressure on selling prices due to the cheaper selling prices that offer by other competitors for similar products. Zoulman Bhd has three types of inventories. There are wooden door, Wooden Windows and Wooden Cupboards. The current inventory system used by Zoulman Bhd is the periodic system and the inventory cost flow assumption is weighted average method. This method was chosen as it is practical and easy to apply. However, due to the current situation, Mr Nizamm, the company’s accountant, sees the importance of having a detailed flow of inventory cost to identify which of the company’s product(s) contributes the largest margin to the company’s profit. Based on the detailed report, the total amount of inventories in Zoulman Bhd was RM1,020,860 on 1st December 2019 and the company closes its account on 31 December each year. In the following table, the company summarised the relevant inventory costs and beginning unit at 1 December 2019:

Wooden Tables

Model	Unit	Cost per unit	Total Cost
B1	25	2800	70000
B2	20	1750	35000
A1	15	4500	67500
A2	30	3250	97500
	90		270000

Wooden Windows

Unit	Cost per unit	Total Cost
220	480	105600
175	560	98000
330	900	2970000
-	-	-
725		500600

Wooden cupboards

Unit	Cost per unit	Total Cost
609	150	91350
315	158	49770
460	159	73140
225	160	36000
1609		250260

Note: Code number (Model A1, A2, B1 and B2) is only applied to Wooden Tables inventory. Mr Nizaam with his team conducted a study to characterize each type of inventory, they found that the business entity purchases their inventories at different prices due to the market prices fluctuation and purchasing from different suppliers. Thus, implementing periodic inventory system and weighted average method are no longer appropriate for the current unease situation as the inventory value may not reflect the current price within the period of price instability. Mr Nizaam has assigned Ms Alyia , a senior account assistant, in order to calculate the value of ending inventory that should appear on Zoulman ’s statement of financial position. in addition, based on the findings of the study of Mr Nizaam’s team, perpetual inventory system is to be applied and different cost flow assumption has been assigned for each type of inventory. The details are given below:

Wooden Tables:

Characteristic: Easily traceable item as it is based on the customer order. The cost of each product is varying depends on its size, colour and shape

Wooden Windows

Characteristic: This item is homogenous; however, Zoulman Bhd acquires this item from a few suppliers. Thus, the cost is erratic.

Wooden cupboards

Characteristic: This item is homogenous and Zoulman Bhd acquires this item from a single supplier.

The followings are the transactions that relate to the purchases and sales of inventories for Zoulman Bhd for the month of December 2019. Net method and freight term are applied based on the individual transaction.

2-Dec Purchase of Wooden Windows from supplier Samass Bhd at the cost of RM47,250 (105 units) with a term 2/10, n/45, FOB destination.

3-Dec Purchase of Wooden Cupboards from Intan Kayu Bhd at the cost of RM50,382 (311 units). Freight term is FOB shipping point. Freight charge incurred RM250.

4-Dec Sold 500 units Wooden Cupboards for the price of RM550 on credit to Gumback Bhd.

5-Dec Gumback Bhd returned 25-unit items from the recent purchase.

10-Dec Sold 15 units of Wooden Tables Model A1 for RM6,000 each.

11-Dec Returned two units of Wooden Windows to the supplier. These units were recently purchased on 2 December 2019.

20-Dec Sold three units of Model A2 for RM5,000 each. Additional costs incurred include RM830 cost on freight FOB destination.

21-Dec Sold 500 units of Wooden Windows for RM850 each.

22-Dec Two defect units of Wooden Windows were returned by a customer.

25-Dec Purchased 11 units of Model B1 from the same suppliers at the same cost.

Mr Nizaam and his team has suggested the new inventory system (mentioned in the case) and the following cost flow assumption for different types of inventories:

Wooden tables	Specific Identification Method
Wooden Windows	FIFO
Wooden Cupboards	- Moving Average Method

Required:

Based on the new inventory system and cost flow assumption, prepare a schedule to compute the cost of purchase, cost of sales and the value of ending inventory for each type of inventories for the month of December, 2019.

Answer 1

Solution: