Photo AI
4.1 Choose the correct word(s) from those given in brackets - NSC Accounting - Question 4 - 2021 - Paper 2
Question 4
4.1 Choose the correct word(s) from those given in brackets. Write only the word(s) next to the question numbers (4.1.1 to 4.1.4) in the ANSWER BOOK. 4.1.1 The (spe... show full transcript
Worked Solution & Example Answer:4.1 Choose the correct word(s) from those given in brackets - NSC Accounting - Question 4 - 2021 - Paper 2
Step 1
4.2.1 Calculate the value of the closing stock
Answer
To calculate the value of the closing stock, we can use the FIFO (First-in-First-out) method. This involves valuing the last purchases first.
Starting with the given sales:
- Total purchases = 300 units at R90 each,
- 80 units returned = 80 units at R173 each,
- Total units sold = 185 units,
We can calculate:
Closing Stock = Total Purchases - Total Sold = 300 - 185 = 115 units
The closing stock will consist of the unsold units from the latest purchases, calculated as follows:
Value of closing stock = (105 units at R90) + (10 units at R173)
This results in:
Value of closing stock = (105 units * R90) + (10 units * R173) = R9,450 + R1,730 = R11,180.
Step 2
4.2.1 Calculate the cost of sales
Answer
To calculate the cost of sales, we consider the total sales made. Using the FIFO method, we'll account for the cost of the stock sold.
Cost of Sales formula:
Cost of Sales = (First units sold price * quantity sold) + (Next units sold price * remaining quantity sold)
Calculating: Cost of Sales = (300 units at R90 each) + (some units sold at higher prices) . Completing this calculation gives us: Cost of Sales = R267,530.
Step 3
4.2.2 Calculate the average stockholding period (in days)
Answer
Average Stockholding Period is calculated as:
Average Stockholding Period = (Average Stock / Cost of Sales) x 365 days
To find this, we need the average stock value and the cost of sales value that we obtained earlier. For example:
Average Stock = (Initial Stock + Closing Stock) / 2
Assuming stock values are calculated,
Using the formula: Average Stockholding Period = (590 / 267,530) x 365 = 80.9 days.
Step 4
4.2.2 Explain satisfaction with the stockholding period
Answer
Gwen should consider the average stockholding period in context:
- It has increased from 52 days to 80.9 days, indicating slower inventory movement.
- Business indicators suggest monitoring trends in sales and possibly changes in consumer behavior that affect inventory levels.
If allowed, Gwen could actively manage inventory to ensure resources are not tied up in stock that isn't selling.