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Stock Control Rose Ltd is a retail store that buys and sells one product - Leaving Cert Accounting - Question 8 - 2010
Question 8
Stock Control Rose Ltd is a retail store that buys and sells one product. The following information relates to the purchases and sales of the firm for the year 2009:... show full transcript
Worked Solution & Example Answer:Stock Control Rose Ltd is a retail store that buys and sells one product - Leaving Cert Accounting - Question 8 - 2010
Step 1
(i) Calculate the value of closing stock using ‘First in/First out’ (FIFO) method.
Answer
To calculate the value of closing stock using FIFO, we first need to determine the total units purchased and sold:
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Total purchases:
- Q1: 3,000 units @ €4 = €12,000
- Q2: 2,200 units @ €6 = €13,200
- Q3: 1,500 units @ €7 = €10,500
- Total purchases = 6,700 units.
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Total sales:
- Credit Sales: 1,000 + 1,000 + 2,200 = 4,200 units.
- Cash Sales: 1,200 + 1,300 + 2,000 = 4,500 units.
- Total sales = 8,700 units.
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Closing stock calculation:
- Opening stock = 4,000 units
- Total units available = Opening stock + Purchases = 4,000 + 6,700 = 10,700 units.
- Closing stock = Total units available - Total sales = 10,700 - 8,700 = 2,000 units.
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Determine the value of closing stock using FIFO:
- 2,000 units @ €6 (last purchase) = €12,000.
Thus, the closing stock value is €12,000.
Step 2
(ii) Prepare a trading account for the year ending 31/12/2009.
Answer
To prepare the trading account, we consider the sales, opening stock, purchases, and closing stock:
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Sales = Total Credit Sales + Total Cash Sales = (1,000 + 1,000 + 2,200) * 10 + (1,200 + 1,300 + 2,000) * 12 = €75,500.
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Less: Cost of Sales = Opening Stock + Purchases - Closing Stock:
- Opening Stock = 4,000 units @ €4 = €16,000
- Purchases: €12,000 + €13,200 + €10,500 = €35,700.
- Closing Stock = €12,000.
- Cost of Sales = Opening Stock + Purchases - Closing Stock = 16,000 + 35,700 - 12,000 = €39,700.
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Gross Profit = Sales - Cost of Sales = €75,500 - €39,700 = €35,800.
The trading account for the year ending 31/12/2009 is summarized as:
Sales: €75,500
Less: Cost of Sales: €39,700
Gross Profit: €35,800
Step 3
Calculate the selling price of Job No. 209 if the profit is set at 20% of the selling price.
Answer
To calculate the selling price for Job No. 209, we first need to determine the total costs:
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Direct materials: €7,350.
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Direct labour costs:
- Dept A = 95 hours * €15 = €1,425
- Dept B = 185 hours * €17 = €3,145
- Dept C = 60 hours * €22 = €1,320
- Total Labour Cost = €1,425 + €3,145 + €1,320 = €5,890.
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Variable overheads: 20% of total direct costs.
- Total Direct Costs = €7,350 + €5,890 = €13,240.
- Variable overhead = €13,240 * 0.20 = €2,648.
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Total cost of Job No. 209:
- Total Cost = Direct materials + Direct labour costs + Variable overheads = €7,350 + €5,890 + €2,648 = €15,888.
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Profit calculation:
- Let the selling price be SP.
- Profit = 0.20 * SP = SP - Total Cost = SP - €15,888.
- Therefore, setting up the equation: SP - €15,888 = 0.20 * SP.
- This simplifies to: 0.80 * SP = €15,888 => SP = €19,860.
Thus, the selling price of Job No. 209 is €19,860.
Step 4
(i) Calculate the under/over absorbed overhead rates for Departments X, Y and Z.
Answer
To calculate the under/over absorbed overhead rates:
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Department X:
- Budgeted overheads on direct costs = €20,000.
- Actual hours worked: 4,000.
- Overhead rate = €20,000 / 4,000 = €5 per machine hour.
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Department Y:
- Budgeted overheads on direct costs = €40,000.
- Actual hours worked: 3,000.
- Overhead rate = €40,000 / 3,000 = €13.33 per machine hour.
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Department Z:
- Budgeted overheads on direct costs = €30,000.
- Actual hours worked: 2,500.
- Overhead rate = €30,000 / 2,500 = €12 per machine hour.
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Under/Over Absorption:
- Compare budgeted with actual costs for each department to find the under/over absorbed amounts.
Step 5
(ii) Explain what these figures mean.
Answer
The under and over absorption figures indicate discrepancies between budgeted and actual costs.
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Under Absorption: Occurs when actual overhead costs exceed the budgeted amounts. This suggests that the company might need to increase its budget or cut costs to meet actual expenditure.
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Over Absorption: Happens when the actual overheads are less than the budgeted costs, indicating efficient use of resources or potential for cost savings.
In summary, analyzing these figures can help in adjusting future budgets, improving cost management, and ensuring financial stability.