(a) Identify the circumstances in which a cost formula may be used to establish the cost of inventories.

(b) A company's inventories at 30 April 2018 include 11,000kg of a chemical which is used in the company's manufacturing processes. Purchases and issues of this chemical during the year to 30 April 2018 were as follows:

Calculate the cost of the company's inventory of the chemical at 30 April 2018 using each of the following cost formulas:

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

(ii) Weighted average cost (AVCO).

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Number of kg Cost per kg May 2017 June 2017 August 2017 September 2017 October 2017 January 2018 February 2018 Opening inventory Issued to production Purchased Issued to production Issued to production 32,000 25,000 15,000 12,000 5,000 10,000 4,000 £7.50 £8.75 Purchased £9.50 Issued to production