CASE STUDY 6 - INVENTORIES [edit] Luke's decision to invest in the group of assets he located has allowed him to change the focus of his work slightly. Luke will now have extra time to focus on improving the success of his DIY Solar System packages. The addition of this extra product has caused Luke to review the way he records his inventory. Luke's client base has expanded so much that he now supplies both tradesman working on large industrial projects and individual household customers. Luke has previously used the periodic system to record inventory as he found he didn't have to think too hard and only had to do a stock take every now and then. Luke also recalled from his studies at University that ...the First-In First-Out (FIFO) method will record the highest ending inventory value.... and has always made use of the FIFO method for that reason. Required 1 Luke has provided you with information below and asked you to calculate the COS and Gross Profit for the two items listed. Luke began the month with no stock of either product. Luke's latest stock take revealed that there were 62 units of Product 1 and 8 units of Product 2 still on hand. Product 1 - Deep Cycle Solar Batteries are a spare parts option to increase the energy storage capacity of anyone with an existing solar system. Each unit now sells for $199 Date Purchases Sales (units) (units) August 3 100 @ $80 6 15 9 45 11 35 @ $90 14 30 16 25 @ $105 18 21 15 30 24 45 @ $100 26 60 @ $120 28 50 29 31 TOTAL (5) @ $100 (Returned) 260 7 192 Product 2 - The DIY Solar System package is an off the shelf package including everything you need to install a new solar system. The packs sell for $2,200 each. Date (units) Purchases (units) Sales Aug 1 25 @ $1,000 2 9 3 5 5 @ $1,060 8 15 18 12 10 @ $1,092 1 6 (2) Returned undamaged 4 21 7 22 8 @ $1153.50 7 24 26 8 TOTAL 48 40 Required 2 [edit] Luke is reasonably happy with the results but seems to remember that while the periodic system of inventory recording was much easier it had some problems. Discuss the appropriateness of the Perpetual and Periodic recording systems for the two products you have looked at and provide reasons to support your conclusions. (You may find that one system is not appropriate for both products.)