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hi please help me with the inventory process and also help me on how I should disclose and present this in the financial statements. Cheetah

hi please help me with the inventory process and also help me on how I should disclose and present this in the financial statements.

Cheetah Packaging Ltd ("Cheetah") is a packaging company that packages hot sauces in South Africa and is famous for their "BlazingSoul" sauce that is sold at restaurants countrywide. Cheetah Packaging has a 31 December 2015 year end.

"BlazingSoul"

"BlazingSoul" is a tangy hot sauce with chillies as its main ingredient. The sauce is packaged in funky red bottles. The sauce is received from a local hot sauce manufacturer and Cheetah Packaging is responsible for packaging the sauce into bottles.

Bottles

Bottles have been specifically designed and manufactured in China for Cheetah. An order was placed for 100 000 bottles on 1 February 2015. The bottles were shipped CIF (Cost Insurance Freight) on 15 April 2015 to South Africa, arrived in South Africa on 10 May 2015 and were also delivered to Cheetah on the 10 May 2015.

The cost of the bottles includes the following:

Invoice price

50 000

Freight

R25 000

Finance cost on loan

R73 000

Custom duties

R25 000

The following exchange rates are applicable to the above mentioned transaction:

Date

R:

1 February 2015= 2.05:1

15 April 2015 = 2.50:1

10 May 2015 = 3.10:1

31 December 2015 = 2.10:1

Sauce

To support the local community, the sauce is bought from a local hot sauce manufacturer in Gauteng. Cheetah received two batches of sauce. The first batch contained 500000 millilitres with a cost of R212 750 (including 15% VAT). Cheetah paid R28500 for transportation of the sauce to the factory. The second batch contained 750 000 millilitres with a cost of R258750 (including 15% VAT). Cheetah paid R37 500 for transportation of the sauce to the factory. The supplier offers a 25% trade discount if payment is made within 30days of the invoice date. Cheetah always pays its suppliers 15 days after invoice date.

The following information is applicable for the production of one "BlazingSoul" sauce:

Cost

100 millilitres

?

1 Bottle

?

Direct Labour (5 minutes)

R50 per hour

Variable factory overheads

Note 1

Fixed factory overheads

Note 1

ADDITIONAL INFORMATION:

  1. Total production overheads are made up of variable overheads of R7 000 and fixed overheads of R33000.

  1. There were 2 500 units of BlazingSoul and zero units of raw material on 1 January 2015.

  1. Closing inventory consists of the following:

31 December 2015

Closing stock

Units sold

Sauce

20 000

Bottles

65 000

BlazingSoul

?

30 000

  1. Cheetah Ltd uses a highly advanced machine to package the sauce. This machine was acquired on the 1 January 2014 for R1150000 (including 15% VAT). It was estimated at the beginning of the year that the machine would produce 1 200000 units before it would be replaced. It is the policy of Cheetah to base depreciation on the number of units manufactured.

  1. Actual production for the year was 2 000 bottles lower than normal production.

  1. Normal capacity is 33 000 bottles of BlazingSoul.

  1. On 31 December 2015 some bottles of "BlazingSoul" were approaching expiry date and Cheetah dropped their selling price to R46 per BlazingSoul sauce.

  1. Sales agents receive R5 per bottle of pink lady sold as sales commission.

  1. Storage costs amounted to R4 per unit of closing stock of "BlazingSoul"

  1. Inventories are valued at the lower of cost and estimated net realisable value. The cost of finished goods is determined on a FIFO basis. The cost of raw materials is determined on a weighted average basis.

  1. All amounts exclude VAT unless otherwise stated.

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