3.1 Complete the sentences by filling in the correct stock valuation method - NSC Accounting - Question 3 - 2020

The Weighted Average method calculates the average cost per unit, which is derived from the total cost of goods sold divided by the total number of units available.

The Specific Identification method tracks the actual cost of each specific item, which is particularly useful for high-value items such as artworks or rare collectibles.

To calculate the closing stock using the weighted-average method:

Total cost of goods available:

• Opening stock: R124,500
• Purchases: R1,813,000 Total = R1,937,500

Average cost per unit = Total cost / Total units available

Total units available = 3,390 units

Average cost per unit = R1,937,500 / 3,390 = R570

Closing stock is 380 units: Value of closing stock = 380 * R570 = R216,600.

So, the value of closing stock is R216,600.

To calculate the Gross Profit:

Sales Revenue = Selling Price per unit * Units sold

Sales Revenue = R960 * 380 = R364,800.

Cost of Goods Sold = Total Cost of Goods - Closing Stock Cost of Goods Sold = R1,937,500 - R216,600 = R1,720,900.

Gross Profit = Sales Revenue - Cost of Goods Sold = R364,800 - R1,720,900 = R1,123,200.

To find how long (in days) it will take to sell the closing stock:

Using the formula: Days to sell = (Units in closing stock / Units sold per day) * 365

If units sold per day are 380 / 365: Days to sell = 380 / (2,880 / 365) = 48.2 days.

Thus, it will take approximately 48.2 days to sell the closing stock.

To calculate the closing stock using FIFO:

• First, consider units sold and remaining units from oldest stock: For the remaining 380 units:

270 units from first stock at R570 = R153,900 110 units from second stock at R580 = R63,800

Total value of closing stock = R153,900 + R63,800 + (remaining items) = R228,500.

The advantage of using the FIFO method is that it results in a higher net income during periods of inflation, as the lower costs of older inventory are matched against current revenues.

To calculate the number of jackets stolen:

Total available jackets = 1,760 + 6,500 - 5,020 = 3,240.

Closing stock = 2,960. So, the number of jackets stolen = Total available jackets - Closing stock = 3,240 - 2,960 = 260.

Solution 1: Implement improved security measures, such as CCTV and security personnel, to monitor activities more effectively.

Solution 2: Consider creating a detailed stocktake process and employee access restrictions to prevent future theft.

Concern: Stock Level

Low stock levels can lead to potential lost sales opportunities.

Explanation: If stock is too low, the company may not meet customer demand, leading to dissatisfied customers and potential loss of market share.

Concern: Selling Price

If the selling price is too high, it may deter potential buyers.

Explanation: The current selling price being R1,450 suggests a markup issue. If this price is not competitive, it may result in unsold inventory.