QUESTION 2 (30 MARKS: 72 MINUTES)

1. Elvis Dresley is the owner of Eldress Boutique that specializes in producing batik shirts, blouses, and other batik theme garments as requested by the customers. The following transactions were completed throughout January 2021.

January 2 Purchased merchandise for RM158,500 from Tulagi Textile and paid 40% as required, and received a credit term of 5/10, n/30, for the remaining balance.

6 Purchased RM68,000 of new batik materials for the summer collection from Narita Textile Inc., terms FOB shipping point, 5/10, n/45. The shipment cost of RM7,200 from Narita, Japan was paid upfront by Narita Textile Inc.

9 Sold merchandise on account to Jengkel Textile for RM135,900, terms 5/10, n/30. The cost of the merchandise sold was RM112,950.

11 Returned merchandise worth RM11,000 to Narita Textile Inc. for the purchase made on 6 January 2021. Since the mistake was caused by them, they have agreed to bear the cost of transportation for RM1,075.

12 Paid the outstanding balance to Tulagi Textile for the merchandise purchased on 2 January 2021.

16 Settled the amount owed to Narita Textile Inc. for the merchandise purchased on 6 January 2021.

23 Jengkel Textile made a bank transfer for full settlement of 9 January 2021 transaction.

26 Sold merchandise of RM56,000 to Salam Aziz Textile. Received cash for RM10,000 while the balance is on a credit term of 5/10, n/30. Cost of goods sold was RM33,600.

31 Salam Aziz Textile returned merchandise of RM7,500 which was wrongly sent to them. The cost of goods sold for this item was RM5,000.

REQUIRED:

Prepare journal entries for the above transactions based on perpetual inventory system (explanations are not required).

(7 Marks)

B. You have been approached by the companys President for some views pertaining to several issues encountered since the outbreak of the deadly Corona virus. In addition, many of the long-serving staffs have opted to resign much earlier to allow younger and energetic fresh graduates to join the company in sustaining current and future business challenges.

As one of the potential future management team members, you have been asked to provide an insight on the companys financial and accounting practices to the young officers during their induction program.

REQUIRED:

1. Explain TWO (2) differences between the perpetual inventory system and periodic inventory system.

(2 Marks)

2. Explain any TWO (2) benefits of using subsidiary ledgers in an accounting system for merchandisers.

(2 Mark)

3. The use of shipping terms FOB shipping point and FOB destination have different implications to the trade terms. You are required to select ONE (1) of the shipping terms and explain TWO (2) advantages of your choice of the shipping term.

(3 Marks)

4. According to a survey conducted by Rakuten Insight in Malaysia, 62 percent of the respondents stated they increased their online purchases because their family were practicing social distancing and wanted to minimize their time outside the home as of May 2020. (source: https://www.statista.com/statistics/1128960/malaysia-reasons-for-increasing-online-purchases-during-covid-19/).

Explain any TWO (2) effects of online purchases to the credit sales operation of a merchandising business.

(2 Marks)

C. Seligi Tuas Boxx (STB) is a local manufacturer of custom-made carrier cases for motorcycles and disabled person vehicles. The following information was taken from the companys accounting records for the year ended 31 December 2020.

Items	RM
Marketing and promotional expenses	60,000
Utilities expense	21,600
Direct labour cost	90,000
Depreciation expense	87,000
Raw materials	480,000
Sales revenue	1,470,000
Insurance expense	24,000
Indirect materials	9,000
Administrative expenses	119,400
Indirect labour	102,000
Maintenance and repair	56,400
Sales commission	7,200
Rental expense	46,200

Additional information:

1. Some of the expenses are divided according to the percentage below:

	Factory (%)	Administration (%)
Insurance	70%	30%
Utilities	70%	30%
Depreciation	70%	30%
Maintenance and repair	50%	50%

2. Rental expense includes RM22,200 of office rental.
3. Inventory balances at the beginning and ending of the year 2020 were as follow:

	January 1 (RM)	December 31 (RM)
Raw materials	39,000	46,800
Work in process	90,000	67,200
Finished goods	141,000	129,000

REQUIRED:

1. Prepare the Statement of Cost of Goods Manufactured for the year ended 31 December 2020 (show your workings).

(10 Marks)

2. The Covid19 pandemic has caused businesses to be unable to continue operating the usual way. However, there are some businesses that managed to adapt to the situation by reviewing their expenses or costs of operation to remain in business although with lesser profit.

Name TWO (2) types of cost and briefly explain how both can be managed based on the situation mentioned above.

(2 Marks)

3. Differentiate between product cost and period cost.

(2 Marks)