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

The correct method is Weighted Average Method, which distributes the total cost over the number of units available.

The correct method is Specific Identification Method, which is used for items that can be distinctly identified.

To calculate the value of the closing stock using the weighted-average method, first find the total cost of goods available for sale:

1. Total opening stock and purchases:

   • Opening Stock: R124,500
   • Purchases: R1,813,000
   • Total Cost = R124,500 + R1,813,000 = R1,937,500

2. Calculate the weighted average cost per unit:

   • Total units available = 3,390
   • Weighted average cost per unit = Total Cost / Total Units = R1,937,500 / 3,390 = R570

3. Closing Stock Calculation:

   • Closing Stock = Units unsold x Weighted Average Cost = 380 x R570 = R216,600

Gross Profit Calculation:

• Total Sales = 2,880 units x R960 = R2,764,800
• Gross Profit = Total Sales - Cost of Goods Sold (COGS)
• COGS = Total Cost - Closing Stock = R1,937,500 - R216,600 = R1,720,900
• Gross Profit = R2,764,800 - R1,720,900 = R1,043,900.

To find the number of days to sell the closing stock:

1. Days to sell = (Closing Stock / Units Sold per Day) x 365
   • Daily sales = 2,880 / 365 units per day = 7.89 units/day
   • Days to sell = 380 / 7.89 = 48.2 days (approx).

Using FIFO, we sell the oldest items first.

1. Calculate value of closing stock:
   • Closing Stock of Jeans = 380 units:
   • From last batch (270 units) at R580 = R156,600
   • From previous batch (110 units) at R560 = R61,600
   • Total = R218,200.

Higher gross profit: The FIFO method usually results in a higher gross profit during periods of inflation since older, cheaper costs are assigned to the cost of goods sold.

To calculate the jackets stolen:

1. Total jackets unaccounted = Opening stock + Purchases - Units Sold = 1,760 + 6,500 - 2,980 = 5,280
   • Therefore, jackets stolen = Total - (Closing - Remaining Inventory) = 5,280 - 5,020 = 260.

1. Improve surveillance: Employ CCTV cameras in the store to monitor activities and prevent theft.
2. Install security measures: Enhance physical security by using security tags or locks on expensive items.

1. Stock Levels Concern: High stock levels can lead to increased holding costs or stock becoming obsolete. Immediate recommendation: Regular stock inspections and better forecasting.

2. Selling Price Concern: Low selling price with high stock levels can lead to losses. Advice: Adjust pricing strategies to improve turnover while covering costs effectively.