AB SPORT SHOP André Brand is the owner of this business - NSC Accounting - Question 2 - 2017 - Paper 1

To find the value of the stock using the weighted-average method, we first need to calculate the total cost of stock available for sale and then divide by the total units available.

1. Total Cost Calculations:

   • Opening Stock Value: R420,000
   • Purchases Total: R4,302,500 + R110,400 (carriage) = R4,412,900

   Therefore, total cost = R420,000 + R4,412,900 = R4,832,900.

2. Total Units Calculations:

   • Total Units Available for Sale: 350 (opening) + 3,150 (purchases) - 20 (returns) = 3,480

3. Value of Stock on Hand Calculation:

   • Value of Stock on Hand:
   • Unit Price = Total Cost / Total Units
   • $\text{Weighted Average Unit Price} = \frac{R4,832,900}{3,480} = R1,388.73 (approximately)$
   • Therefore, the value of the closing stock = 465 * R1,388.73 = R645,079.95 (approximately)

Gross profit is calculated by subtracting the cost of goods sold (COS) from total sales revenue.

1. Total Sales Revenue: R5,400,000
2. COS:
   • $\text{COS} = \text{Opening Stock} + \text{Purchases} - \text{Closing Stock}$
   • Using the stock values: R420,000 + R4,302,500 - R645,079.95 = R4,077,420.05
3. Gross Profit Calculation:
   • $\text{Gross Profit} = \text{Total Sales} - \text{COS} = R5,400,000 - R4,077,420.05 = R1,322,579.95$

To find how long in days it will take to sell the closing stock, we will use the following formula:

$\text{Days to Sell Closing Stock} = \left( \frac{\text{Closing Stock}}{\text{Average Daily Sales}} \right)$

1. Average Daily Sales Calculation:

   • Total Sales = R5,400,000 for the year.
   • Assuming the sales period is 365 days, average daily sales = R5,400,000 / 365 ≈ R14,795.89.

2. Closing Stock in Days:

   • Average Selling Price per bat = R1,800, therefore:
   • Daily Sales in Units = Average Daily Sales / Selling Price = R14,795.89 / R1,800 ≈ 8.22.
   • Finally, days to sell 465 units = 465 units / 8.22 units/day ≈ 56.6 days.

To support André's concern, we can analyze the discrepancy in stock:

1. Stock Control Calculation:
   • Opening Stock: 350
   • Purchases: 3,150
   • Returns: 20
   • Total Stock Available: 350 + 3,150 - 20 = 3,480
   • Closing Stock: 465
   • Missing Stock Calculation:
   • Expected Stock = Total Available - Closing Stock = 3,480 - 465 = 3,015 (missing)

This indicates a significant loss, which raises concerns about the management and control of stock.

One potential solution could be to improve stock security measures. This could involve:

• Implementing regular stock audits to ensure physical stock matches recorded stock.
• Using security cameras in the stockroom to deter theft.
• Training staff on proper inventory management practices to minimize loss.