Question 1

ABC Company Ltd uses the periodic inventory system. At 1 April 2016 the company had 170* units as opening stock valued at $22 each. During the year ended 31 March 2017 the Company sold 2,765* units for $105,070. ABC Company made the following purchases during the year:

30 May 2016 500* units for $23 each
31 August 2016 400* units for $21 each
30 November 2016 1,000* units for $24 each
28 February 2017 1,000* units for $23 each


At 31 March 2017 ABC Company Ltd had 305* units as closing stock.


Calculate the closing inventory, cost of sales and gross profit using the:

  1. FIFO method.
  2. Weighted Average method.


Question 2

ABC Company Ltd has just developed a new electronic device which, when mounted on an automobile, will tell the driver how many miles the automobile is traveling per gallon of gasoline. The company is anxious to begin production of the new device. To this end, marketing and cost studies have been made to determine probable costs and market potential. These studies have provided the following information:

a. New equipment would have to be acquired to produce the device. The equipment would cost $315,000* and have a 12-year useful life. After 12 years, it would have a salvage value of about $15,000.

b. Sales in units over the next 12 years are projected to be as follows:

Year Sales in Unit
1 6,000*
2 12,000*
3 15,000*
4-12 18,000*


c. Production and sales of the device would require working capital of $60,000* to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released at the end of the project’s life.

d. The devices would sell for $35 each; variable costs for production, administration, and sales would be $15 per unit.

e. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total $135,000* per year. (Depreciation is based on cost less salvage value.)

f. To gain rapid entry into the market, the Company would have to advertise heavily. The advertising program would be:

Year Amount of Yearly Advertising
1-2 $180,000*
3 $150,000*
4-12 $120,000*


g. The company’s required rate of return is 14%.



(Ignore income taxes.)

  1. Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated from sale of the device for each year over the next 12 years.
  2. Using the data computed in (1) above and other data provided in the problem, determine the net present value of the proposed investment. Would you recommend that ABC Company Ltd accept the device as a new product?


Question 3

The marketing department of ABC Company Ltd has submitted the following sales forecast For the upcoming fiscal year:

  1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted unit sales 8,000* 7,000* 6,000* 7,000*

The company expects to start the first quarter with 1,600 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 20% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,700 units.

In addition, the beginning raw materials inventory for the first quarter is budgeted to be 3,120 kilograms and the beginning accounts payable for the first quarter is budgeted to be $14,820*. Each unit requires 2 kilograms of raw material that costs $4.00 per kilogram. Management desires to end each quarter with an inventory of raw materials equal to 20% of the following quarter’s production needs. The desired ending inventory for the fourth quarter is 3,140 kilograms. Management plans to pay for 75% of raw material purchases in the quarter acquired and 25% in the following quarter.


  1. Prepare the company’s production budget for the upcoming fiscal year.
  2. Prepare the company’s direct materials budget and schedule of expected cash disbursements for purchases of materials for the upcoming fiscal year.

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