Help!

[TyErd]

okay thnx but what if the question was how using product cost rather than period cost would affect profit, how would you respond?

Another question:

1. State one benefit a company would derive by accepting returns from customers who change their mind.

[eeps]

okay thnx but what if the question was how using product cost rather than period cost would affect profit, how would you respond?

Another question:

1. State one benefit a company would derive by accepting returns from customers who change their mind.

Answer:

- good will/customer loyality. if a company is willing to accept returns from customers, then this will make customers satisfied and they may come back in future to purchase other items. [this means that the company will have a good reputation with customers and also helps with customer loyality.]

[TyErd]

good response thankyou

[eeps]

Question:

In March 2009 Cobey's Footware bought 90 pairs of 'Qwik' running shoes at a cost of $265 per pair. The stock take on 31 March 2009 showed that 30 pairs of the shoes were still on hand and were very slow sellers. It was estimated that the shoes could be sold at $280 per pair if they had a special advertising campaign that would cost a total of $1800 was undertaken.

*. Explain the effects of applying the 'lower of cost and net realisable value' basis of valuation to the 30 pairs of shoes on the both the Profit and Loss Statement and the Balance Sheet.

How would I work out the 'lower of cost and net realisable value'?

Thanks.

[_avO]

To calculate NRV you use the rule:
NRV =QTY x (Estimated selling price less other selling expenses),

in this case the Estimated selling price is $280 each
and the other expenses is the advertising of $1,800

It is logical to use product costing to divide the advertising expense into the valuation of each individual item of stock
$1,800 / 30 (pairs of shoes)
= $60
Therefore 60 dollars is the other selling expense per shoe

Again looking at the rule NRV =QTY x (Estimated selling price less other selling expenses), you can calculate the lower of cost and net realisable value.
NRV = 30 x (280 - 60)
      = 30 x (220)
      = $6,600

[Yitzi_K]

30 pairs costing a total of $1800 advertising would mean that you're paying $60 to advertise each pair, so you have to subtract that from the realisable value of $280 to make a net realisable value of $220 each.

This is clearly lower than the cost price of $265, so the lower of cost and net realisable value is the NRV of $220 each.

Therefore you have to subtract the $45 so as not to overstate the value of the stock (conservatism). This subtraction of $45 * 30 pairs is a total loss on the shoes of $1350, which is a loss in the Profit and Loss statement. This loss is recorded after Gross Profit and before Adjusted Gross Profit (ie the same place as stock loss).

[eeps]

To calculate NRV you use the rule:
NRV =QTY x (Estimated selling price less other selling expenses),

in this case the Estimated selling price is $280 each
and the other expenses is the advertising of $1,800

It is logical to use product costing to divide the advertising expense into the valuation of each individual item of stock
$1,800 / 30 (pairs of shoes)
= $60
Therefore 60 dollars is the other selling expense per shoe

Again looking at the rule NRV =QTY x (Estimated selling price less other selling expenses), you can calculate the lower of cost and net realisable value.
NRV = 30 x (280 - 60)
      = 30 x (220)
      = $6,600

30 pairs costing a total of $1800 advertising would mean that you're paying $60 to advertise each pair, so you have to subtract that from the realisable value of $280 to make a net realisable value of $220 each.

This is clearly lower than the cost price of $265, so the lower of cost and net realisable value is the NRV of $220 each.

Therefore you have to subtract the $45 so as not to overstate the value of the stock (conservatism). This subtraction of $45 * 30 pairs is a total loss on the shoes of $1350, which is a loss in the Profit and Loss statement. This loss is recorded after Gross Profit and before Adjusted Gross Profit (ie the same place as stock loss).

Thanks for the help + detailed answers!

[eeps]

Question:

- Fether's Homewares buys air-conditioners in shipment of 50 units...

- Fether Electrics brand badge for each item :: $10 per 1000 badges.

Justify with reference to one accounting principle how you would treat the Fether's Electrics brand badge for each item.

I know that the badges should be treated as period cost as the badges cannot be allocated to each individual item of stock on a logical basis (10/100=0.01, the amount is too insignificant.) The thing that I'm not sure about is principle... and how to link it back to the question.

Thanks.

[Yitzi_K]

Historical cost?

As they're so insignificant, they don't get added to the historical cost.

It's not the best explanation but no other principle seems at all relevant.

[eeps]

Historical cost?

As they're so insignificant, they don't get added to the historical cost.

It's not the best explanation but no other principle seems at all relevant.

LOL. yeah, might be... since I don't think the obvious ones of... Reporting Period and Conservatism fit. :S