Question 2 OR (d)
Closing stock by FIFO and the perpetual weighted average
8 marks
- Time to write
- About 16 minutes
From an older CBCS paper
Question
Question 2 OR (d) · 8 marksDetails of the material of Om Mills are below:
| …1.2009 | Opening Stock | 120 units @ Rs 25 per unit |
| …1.2009 | Purchases | 240 units @ Rs 30 per unit |
| …5.1.2009 | Issued for consumption | 120 units |
| …2.2009 | Purchases | 480 units @ Rs 40 per unit |
| …5.2.2009 | Issued for Consumption | 240 units |
| …0.2.2009 | Issued for Consumption | 240 units |
| …3. 2009 | Purchases | 360 units @ Rs 50 per unit |
| …5.3.2009 | Issued for Consumption | 240 units |
Find out the closing stock's cost as on 31.3 2009 on:
First in first out basis
Weighted average price basis, with the perpetual inventory system. 8
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- (i)–(ii)2 items, each marked on its own: give each its share.
- Find outFormula first, then the working, then the answer with its unit (₹, %, units).
What the paper leaves open
The day numbers of the dates are cut off at the left edge of the scan (shown as …); the entries are taken in the order printed, which is the date order. The weighted average is the perpetual (moving) average, as the question says.
Write it in this order
- Read the data; note exactly what is asked 1 min
- 1 FIFO closing stock 4 marks 7 min
- 2 Weighted average closing stock 4 marks 7 min
- Check: arithmetic, units (₹, %), final answer underlined 1 min
Try it first. About 16 minutes for 8 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
The entries are taken in printed order, which is the date order (paper note). Under FIFO the earliest costs are issued first, the result being the same under perpetual and periodic records; under the perpetual weighted average the average is recomputed after each receipt.
| Transaction | Issued from | Balance in hand |
|---|---|---|
| Opening; purchase 240 @ 30 | 120 @ 25; 240 @ 30 | |
| Issue 120 | 120 @ 25 | 240 @ 30 |
| Purchase 480 @ 40 | 240 @ 30; 480 @ 40 | |
| Issue 240 | 240 @ 30 | 480 @ 40 |
| Issue 240 | 240 @ 40 | 240 @ 40 |
| Purchase 360 @ 50 | 240 @ 40; 360 @ 50 | |
| Issue 240 | 240 @ 40 | 360 @ 50 |
Closing stock (FIFO) = 360 × 50 = ₹18,000.
(ii) Weighted average (perpetual)
| Transaction | Units | Rate (₹) | Issue cost (₹) | Balance units | Balance value (₹) |
|---|---|---|---|---|---|
| Opening @ 25 | 120 | 25.0000 | 120 | 3,000 | |
| Purchase @ 30 | 240 | 28.3333 | 360 | 10,200 | |
| Issue | 120 | 28.3333 | 3,400 | 240 | 6,800 |
| Purchase @ 40 | 480 | 36.1111 | 720 | 26,000 | |
| Issue | 240 | 36.1111 | 8,666.67 | 480 | 17,333.33 |
| Issue | 240 | 36.1111 | 8,666.67 | 240 | 8,666.67 |
| Purchase @ 50 | 360 | 44.4444 | 600 | 26,666.67 | |
| Issue | 240 | 44.4444 | 10,666.67 | 360 | 16,000 |
Closing stock (weighted average) = ₹16,000 (360 units @ ₹44.4444).
In a period of rising prices FIFO gives the higher closing stock (latest costs) and the weighted average a lower one.
Where the 8 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | FIFO closing stock | 4 |
| 2 | Weighted average closing stock | 4 |
| Total | 8 |
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