18.3 Life, Universe and Everything Co. Ltd trades in one product, ‘galaxies’. The company’s stock as at 1 January 20X2 consisted of 20,000 galaxies, costed as follows:

Basis Units Price per unit £ Total £

FIFO 20,000 40 800,000 During the year ended 31 December 20X2, the company made the following sales and purchases:

Sales Purchases Units Price per unit r Units Price per unit X

January 6,000 40 February 4,000 54 April 24,000 55 June 6,000 70 October 6,000 70 December 3,000 60 The replacement cost of one galaxy was February

£45 June

£57 October

£58 December

£60 The company, due to its extraordinary nature, had no expenses, other than cost of goods sold, in 20X2.

The Managing Director, Mr Beeblebrox, has asked your advice as ro whether replace¬ ment cost is a more efficient basis for determining dividends.

Required:

Your reasoned advice ro Mr Beeblebrox, including detailed calculations of profit on the bases of

(a) FIFO and

(b) replacement cost.