EC Sep 2019 RaatnyEl. INVENTORY VALUATION e (35 marks; 25 minutes) Alpha Electronics is a business that sells televisions. The business is owned by John Fortune. They make use of the WEIGHTED AVERAGE method for stock valuation and use the periodic inventory system. The financial year ended on 28 February 2019. The mark-up is 25% on cost price. REQUIRED: 1.1. Calculate the following on 28 February 2019: 1.1.4 Value of the closing stock. (10) 1.1.2, Gross profit for the year ended ©) 1.2 The owner and the accountant disagree on the method of stock valuation. The ‘accountant wants to use the FIFO method. 1.2.1 Caloulate the stock value on 28 February 2019 using the FIFO method. @ 1.2.2 Explain the effect on gross profit if the FIFO method is used. @) 1.23. Asaninternal auditor, explain the benefits of using the FIFO method to the ‘owner and the accountant. State TWO points. 4) 1.3 John Fortune feels that he was not able to achieve his targeted mark-up % for 2019, + Doa calculation to confirm whether he is correct. @ * Provide TWO suggestions that can be implemented to improve profitability ) INFORMATION: ‘A. Stock of television sets: Date Total 1 March 2018 R195 424 28 February 2019 2 Revision Activities (Revises 2021) ‘Accounting Term 2, 2020 B. Purchases and returns of television sets during the year. No of units Total Purchases: ‘July 2018 [200 units @ R4 680 each 936,000 Oct 2018 | 388 units @ R5 145 each 1996 260, Jan 2019 | 200 units @ R5 512 each 1.402 400 788 units in total 4034 660 Returns units from the January 2019 purchases. C. Sales for the year, R3 450 300 Bs]Noo 2019, INVENTORY VALUATION e (45 marks; 35 minutes) George Grande isthe majriy shareholder and CEO of Grande Lid. The company supplies fotos with cabinets and amps. The periodic system is used. ‘Tho year-end ¢ 30 September 2019, REQUIRED: CABINETS: 2.4 Calcite the value of closing stock for cabinets on 30 September 2019 using the frst In fist metho, © 22 Inzoia, company decedent get mare and grat ade cons 22.1 Calculate the % mark-up achieved in 2018, “ 222 Provide TWO points (with ures) to prove that his decision achieved aims. (4) 223 The CEO feel that his decision also negatively affected the company. ‘+ Provide TWO points (with figures) 0 suppot his opinion. “ + Give the crectors advice to soe this problom. Explain TWO points. (a) Lamps. 29. Galette the stockholding period for amps (use closing stock) ° 24 Georges concermed about the contol of lamps. An investigation revealed thatthe store "manager was supplying local boarding houses with lamps without documentation, + Caleuate the numb of missing lamps. © + Give TWO suggestions o sotve ths problem, ” 5 Revision Acs avn) ‘counting Term 2, 2020 ‘TELEVISION SETS, 25 During Ap 2019, while George was in hospital, Bruce Swann (the che financial ‘ce decided to incude television sets in the product range. He was able to secure bulk eiscounts from Roseway on two TV sot modes, namely LYN and KYA, Calculate the value ofthe closing stock of TV sets on 30 September 2019 using the spect identfication metho. o 28 An employee of Roseway told George that Bruce received a 10% ‘commission’ rom RRoseway for buying excess stock. George wants 'o discuss ths atthe next board mooting. Explain THREE diferent concems hat George would have about this proba ° INFORMATION: A. Stock records of cabinets and lamps: aa [cans owe | ee | vor | owns | Tora ‘Sioek balances 10a 2018 [S70] Ra00_| RISE OD] — aod ROS ‘Sep. 2010] 280 fi 20s Rs0.625 Purchases: 2 “anus [CO EON PETC ETT ion 1-200 | R090 [ 1 tas 000 | 1-600 —[ aso 000 rm 250 —[ Ri 100| R275 000 | — Boo —| 210.000 Total 2250 iz 190 000 | 3 e00—| R82 000 Retr 20] Ri 00 T Sales 3675 Cost of sales Roo BB. Information relating to cabinets: ra} ae Sas F580 000 | 83 S00 ost ss 2170500 | R1 880000 Uns 3 2520 2500 Selng pcs par unk Riso R100 Semariup chee z Be Cisne on raed F 2INFORMATION: A. Stock records of cabinets and lamps: CABINETS LAMPS uss | GN | ror | uwns | ToTAL Stock balances 4 Oct. 2018 370 R800 R296 000. 600. R108 000 30 Sep. 2019 280 2 265 R59 625 Purchases: 2019, January 800 R920 R736 000 1200 R240 000 April 1200 R990_| R1 188 000 1800 R432 000 July 250 R1 100 R275 000 800 R210 000 Total 2250 R2 199 000 3800 R882 000 Returns 20 R1 100 Sales 3675 Cost of sales R930 375 B. Information relating to cabinets: 0 R3 375 000 2170500 | _R1 950.000 | Uni 2320 | 2500 Selling price per unit R1500_ R1 400 % mark-up achieved 7 | 73% Customers on record 37] 26 n Activities (Revised 2021) ‘Accounting Term 2, 2020 €. Stock records of television sets: UNIT PRICE Purchases May 2019, LYN KYA 950, R7 200 R6 840.000 | July 2019) [TOTAL R3 612 000 R5 443 200Gr 12 Accounting Revision MANUFACTURING (Paper 2) Basic concepts and calculations 33 ‘Opening tock + Purchases + Cariage on purchases ~ Closing stock Direct material cost (DMC) | « Raw materials used Direct labour cost (DLC) | Normal wages (no. of workers x no. of hours xrate) ADD Overtime (no. of workers xno. of hours xrate) ADD UIF/Medicl/Pension contributions Factory / Manufacturing Indirect material (Opening stock + Purchases ~ Closing stock] overheads (FOHC) Indirect labour (Cleaners, security, foreman) ADD contributions UIF/Pension Depreciation - Factory equipment Water & Electricty (Factory) All other factory expenses Unit costs Total cost divided by number of units produced Fined cost FOHC + Admin costs (AC] Variable cost [DMC + DLC Seling&Distribution costs (OC) FORMAT OF THE PRODUCTION COST STATEMENT FORMAT OF THE ABRIDGED INCOME STATEMENT (short format) Direct material cost Sales ‘Direct labour cost Less Cost of Sales (Cos) te) =Prime cost Gross profit “Factory overhead cost Selling & Distribution costs =Total cost of production ‘Administration costs | +Work in process beg year -Work in process end year Net profit ‘Total cost of production of finished goods | CoS ANALYSING PRODUCTION COSTS STATEMENTS. Calculating the cost per unit of certain cost items will reveal: which costs are higher/ lower as the budgeted costs, = which items are exceptionally high and need to be controlled carefully 1ow costs compare to previous years. Calculate the break-even point (BEP): FORMULA: = BEP determines the quantity produced where no profit or loss is shown; income is only enough to cover costs. TOTAL FIXED costs =... Number of products/units (selling price per unit - variable costs per unit) POSSIBLE IDEAS TO SAVEIDECREASEICUT PRODUCTION COSTS: ‘Bulk buying (buy in large quantities) to receive bulk discount = Cash purchases to receive cash discounts = Use alternative suppliers that offer more promising buying conditions - oa work study in the factory to determine whether the factory is using efficient production methods, reduce wastage of materials and labour time Activities