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Question 2 (a) Heather is a first-year accounting student on a summer internship in a local toy manufacturing company. You, as the management accountant
Question 2 (a) Heather is a first-year accounting student on a summer internship in a local toy manufacturing company. You, as the management accountant in the company, have been tasked with preparing a concise memo for Heather, outlining the strengths and weaknesses of three inventory valuation methods, first in first out (FIFO), last in first out (LIFO), and Average (Weighted Average). Required: Prepare a memorandum describing inventory valuation using FIFO, LIFO and Average (Weighted Average) methods, explaining how the cost of inventory issued to production is calculated and how closing inventory is valued, under each method. (12 Marks) (b) The following sentences describe different cost terms. You are required to identify each cost term AND provide an example to illustrate your answer. i. ii. iii. This cost cannot be specifically identified with a given cost object. This cost is not related to the product and not included in inventory valuation. This cost is fixed within specific activity levels; that is, the cost increases by a fixed amount when activity increases beyond a certain level iv. V. This cost increases or decreases directly with increases or decreases in activity. This cost term describes the direct costs that are included in a product or service. (15 Marks) (c) Prestige Technology DAC sells a large range of electronic products ranging from the latest laptops and mobile phones to batteries and copying paper. The company's board of directors is concerned about the high inventory level and has asked you for advice regarding how it may be controlled effectively. An analysis of the inventory of Prestige DAC on 31 December is as follows: Total value Laptops and mobile phones Hard drives, power banks, batteries Accessories and copying paper Totals Required: Number of items 1,450 1,305,500 5,200 374,400 10,340 50.150 16,990 1.730,050 Write a note for the board of Prestige Technology DAC clearly describing how the company's inventory may be controlled. (6% Marks) (Total: 33% Marks) 6
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