Tubby is a retailer that buys and sells handmade robotic toys. He buys a basic prototype and then programs it to do all sorts of unique tricks. The following information was provided that relates to the month ended January 2022:

Toy production:

At the December 2021 month-end run Tubby had 200 robotic toy units left with a total value of R24 000.

On the 5th of January 2022 Tubby purchased 90 robotic toy units which cost him R128 per unit.

On the 10th of January 2022 Tubby realised that some of the robotic toy units from his previous purchase (on 5 January 2022) were broken. He was not happy with this at all and arranged to have 9 broken units returned to the supplier on that very same day and requested a refund.

Closer to the January 2022 month end he realised that there will be a shortage of robotic toys and had an additional order of 40 robotic toy units delivered on the 19th of January 2022. This order cost him R4 400 for the stock plus an additional transport cost of R320 to have the robotic toys delivered on that same day.

Toy sales:

Tubby sells his robotic toys online. Customers can buy robotic toys up until the 25th of each month. He does not take sales or orders after this date as he has to put time aside to complete his month-end close procedures.

On the 31st of January 2022 he counted 49 robotic toys on hand. There were no damaged or stolen toys noted during the count.

The net realisable value of the 49 robotic toys amounted to R6 370.

ANNEXURE F: FORMATIVE ASSESSMENT 1

REQUIRED:

3.1 Determine the cost of closing inventory, assuming that the business uses the weighted average cost allocation method and the periodic recording system.

3.2 Determine the cost of closing inventory, assuming that the business uses the FIFO cost allocation method and the periodic recording system.

3.3 Technology is constantly changing, and Tubby is unsure about the inventory recording system and subsequent inventory measurement bases which would best suit the robotic toys. To assist Tubby, explain the difference between each of the following terms:

3.3.1 Perpetual system vs Periodic system.

3.3.2 First-in-first-out (FIFO) vs weighted average cost allocation method.

3.3.3 Advise Tubby on which inventory recording system and measurement bases he should use, and why. Provide a reason to support your suggestions.