At 1 July 2015,Epsilon Pty Ltd had 100 items of inventory which had cost $50 each.During the year ended 30 June 2016,it purchased 1500 items at a cost of $50 each.Of these,200 were returned to the supplier as they were damaged.During the year,1200 items were sold for $80 each,but 50 were returned by customers.Overhead expenses during the year amounted to $15 000.
- What was the value of inventory in the balance sheet at 30 June 2016?

Question

Quizplus · Accepted Answer

The cost of goods available for sale can be calculated as follows: 
100 items (initial inventory) x $50 = $5,000 
1,500 items (purchased) x $50 = $75,000 
Total cost of goods available for sale = $80,000

The cost of goods sold can be calculated as follows: 
1,200 items (sold) x $50 = $60,000

To calculate the cost of ending inventory, we must subtract the cost of goods sold from the cost of goods available for sale:

$80,000 - $60,000 = $20,000

However, we also need to take into account the 200 damaged items that were returned to the supplier. This means that only 1,300 items were actually available for sale.

The cost per item can be calculated as follows: 
$75,000 ÷ 1,500 = $50

The cost of the 200 damaged items can be calculated as follows: 
$50 x 200 = $10,000

Therefore, the cost of goods available for sale is reduced by $10,000:

$80,000 - $10,000 = $70,000

The cost of ending inventory can now be calculated as follows: 
1,100 items (1,300 - 200) x $50 = $55,000

Adding the overhead expenses of $15,000 to the cost of ending inventory gives a total of $70,000 + $15,000 = $85,000.

Therefore, the value of inventory in the balance sheet at 30 June 2016 is $85,000.

The closest answer choice is D) $12,500, but this is not correct.

At 1 July 2015,Epsilon Pty Ltd Had 100 Items of Inventory