Answer to Question #225616 in Marketing for Amar12

Question

A shop stocks shoes which sells at Rs 550 each to avoid overstocking and because of limited space, the

deliveries from four manufacturers, at different prices, are made to the shop on a weekly basis at

opening time on Monday morning. During October, the deliveries and sales were as shown below and

there was an opening stock of 100 shoes which has been purchased in September, at Rs 290 eaShoes purchased Number of shoes

Week No. Number Cost Each Sold

01 200 300 150

02 300 330 330

03 400 290 350

04 300 350 390

Trading accounts are prepared monthly and from information given above, you are required to;

Required: Prepare stock record (Material ledger cards) for the transactions based on two methods of

pricing issues listed below:

a) LIFO

b) Weighted averagech.

Answer 1

* above the unit cost of good sold and unit cost of Inventory balance is calculated and taken from the right edge column of average cost calculation.

Weighted average method is advisable in this situation because the purchase price is not showing any increasing (inflation) or decreasing (deflation) trend. FIFO is applicable in case of inflation and LIFO in deflation in order to show a better financial statement. Here the price is fluctuating without any such continuous increasing or decreasing pattern. So, to show the effect of price changes here weighted average is most suitable.

a) LIFO

b) Weighted average