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You are provided with information relating to Hot-Wheels (Pty) Ltd for the three months ending 30 September 2017 - NSC Accounting - Question 5 - 2017 - Paper 1
Question 5
You are provided with information relating to Hot-Wheels (Pty) Ltd for the three months ending 30 September 2017. The business trades in motorbikes and helmets. Mik... show full transcript
Worked Solution & Example Answer:You are provided with information relating to Hot-Wheels (Pty) Ltd for the three months ending 30 September 2017 - NSC Accounting - Question 5 - 2017 - Paper 1
Step 1
5.2.1 Calculate the value of the closing stock on 30 September 2017 using the specific identification method.
Answer
To calculate the closing stock value using the specific identification method:
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Identify the quantities and values of the motorbikes:
- Model 1: 243,000
- Model 2: 109,600
- Model 3: 252,800
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Using the data provided, the calculation is as follows:
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CS = 243,000 + 109,600 + 252,800 = 605,400 -
So, the value of the closing stock on 30 September 2017 is $605,400.
Step 2
5.2.2 Mike requires your advice on the three different models of motorbikes in which he is trading. Explain TWO points of advice.
Answer
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Reducing Prices: Lowering the price of Model AO2 may increase sales, and thus help in reducing the current stock levels.
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Discontinuing Products: Consider discontinuing Model AO2 and investigate alternatives that might be more profitable or popular among customers.
Step 3
5.2.3 Calculate the value of the closing stock on 30 September 2017 using the weighted-average method.
Answer
In this scenario, we calculate the weighted-average cost (WAC) for the stock:
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First, find the total cost of stock and the total quantity:
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Total cost = 517,675
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Total quantity = 12 (previous values provided)
- Calculate WAC:
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The closing stock value using the weighted-average method is approximately $6,201.12.
Step 4
5.2.4 Is the weighted-average method appropriate to value the helmets? Explain ONE point.
Answer
Yes, the weighted-average method is appropriate for valuing helmets because:
- Helmets are often sold in similar batches and share comparable values, which makes averaging a reasonable approach to determine overall stock value.
Step 5
5.2.5 Mike suspects that helmets are being stolen from the shop despite security cameras being installed.
Answer
To verify his suspicion:
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Calculate the discrepancy:
- Assume 30 helmets in stock and 5 missing can be represented as follows:
This indicates a loss of 5 helmets.
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To improve internal control, Mike can:
- Regularly review stock counts to identify discrepancies promptly.
- Utilize security tags on helmets to deter theft.
- Train staff to monitor stock movement and customer interactions actively.