The main activity of J&T Ltd is to buy old vehicles, which are sold after converting them into a saleable condition. At 28 February 2018, the end of the company€™s financial year, J&T Ltd had the following vehicles that were at various stages in the process of being converted to be ready for sale.

1. Expected selling expenses for each vehicle are 6% of the expected selling price.

2. A quarter of the conversion costs relate to materials, but 20% of the cost of materials used in the conversions are considered to be abnormal wastage, due to a poor quality type of material that has been used.

In an attempt to reduce the abnormal wastage of materials, material P has been used by the company since 5 January 2018, when 25 kilos were purchased for a total cost of £550. Subsequent purchases and usage of this material were as follows:

To ensure the correct valuation of the company€™s inventories is reflected in the final accounts, the company follows the guidance provided in IAS2 Inventories.

Required:

(a) Compute, in accordance with IAS2 Inventories, the value at which the inventory of vehicles as at 28 February 2018 should be shown in the final accounts of J&T Ltd.

(b) Determine the total cost of the abnormal wastage of materials that has been incurred on the conversion of the four vehicles.

(c) Calculate the total cost of material P that has been used and the cost of the inventory of this material as at 28 February 2018, using each of the following cost formulas:

(i) First-in, first-out (FIFO).

(ii) Weighted average cost (AVCO).

(CIPFA)

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Purchase price Conversion Expected Velhicle Expected further Costs incurred on bringing to present location selling price costs incurred to costs before sale date £ 9,470 1,080 880 14,000 19,300 6,000 11,800 12,830 3,550 150 600 2,200 х 940 1,540 1,260 750 7,680 460 Transaction Number of kilos Total cost (£) Date Jan 7 Used 19 Jan 20 Jan 28 Purchased 20 520 Used 18 Feb 7 Used 4 Feb 15 Purchased 15 315 Feb 28 Used 3