Inventory

Please help with the questions below.

You are the financial accountant of XYZ company. You are charged with the responsibility of investigating and sufficiently explaining certain “abnormalities ” in relation to inventory. The financial controller is suspicious that some employees have been stealing some units held in stock but lacks the conclusive evidence. You are furnished with the following information relevant to the current financial period:

Units bought = 3400 units
Inventory at start = 700 units
Inventory counted at end = 600 units
Units sold during the period = 3300
Purchase price per unit = $2.50
Normal selling price per unit = $4.00

You are additionally informed that the 600 units counted in the warehouse at year end included 100 units which were spoiled due to improper storing. They are no longer saleable at normal selling price but are likely to be sold for $2 after incurring $200 to transport the batch to a prospective customer.

Answer the following:

1. As a matter of fact, how many units were sold and what was their aggregate cost?

2. At what amount should the inventory held at period end be valued?

3. Applying the equation; Cost of sales = Opening inventory + Purchases – Closing inventory, calculate the value of Cost of sales

4. Is there a difference between your answer in 1 and 3 above, if so narrate in depth, the cause(s) of such difference, using numbers as far as possible to help better demonstrate your argument.

5. Between your answer in 1 and 3, which amount should be shown in the financial statements as cost of sales if they are to show a true and fair view?

6. Narrate the full double entry to be passed to correct the effects of the cause(s) of difference you mentioned in 4 above, stating clearly the reasons for the entries you believe should be made. ( In your answer, you are to assume two scenarios and accordingly show entries relevant to each. You are to first assume that you are not insured against any losses related to inventory and then after show entries you would pass if you are fully insured.)