Alfa Ltd commenced its manufacturing business on 1st April 2016. You have been asked to advise the Managing Director on the valuation of closing inventory on 31st March, 2017. You have the following information :
(i) Inventory consists of raw materials and finished goods.
(ii) It is the policy of the company to value raw materials using ‘periodic weighted average’ method.
(iii) The store manager has attempted to value inventory at cost and has calculated the following values:Required:

(a) Explain with reasons why the stores manager approach is incorrect in valuing the inventory;

(b) Calculate the correct value of Closing Inventory based on AS-2: Inventories.

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(a) Raw materials Finished goods Total (iv) The valuation were carried out as follows: The price of the raw materials has risen from 76.25 per unit to 80.50 per unit during the year. The closing value in point (iii) (a) above represents 11.500 units @ 80.50 per unit. There were 195 units of finished goods in inventory at 31st March, 2016, which have been valued at * 410 per unit. The break-up of cost is as follows: Direct cost. Factory overhead Selling and distirbution overhead (v) During the year, three batches of raw materials were purchased on the following dates: 15,000 units @ 76.25 13,000 units @ 78.25 9,25,750 79,950 10.05.700 30 May 25 August + 236.25 113.75 60.00 410.00 20 March 8,000 units @ 80.50 (vi) 50 units of finished goods were damaged due to collapse of ceiling of the stores room. The repairing cost per unit will be 130. After repairing these items could be sold @* 275 per unit.