Question

1. The following transactions of Fernglen Limited, a manufacturer of children’s’ tables and chairs took place during April 2017. MODULE MANAGEMENT ACCOUNTING TOTAL MARKS 60 MARKS APRIL 01 Stock on hand 600 units @ R220 per unit 03 Issued to production 350 units 08 Returned from production to stores 50 units 17 Purchased from supplier 2000 units @ R230 per unit 20 Issued to production 800 units 21 Returned to supplier (purchased on 17 April 2017) 200 units 30 Issued to production 800 units 1.1 Determine the value of closing inventory based on the First-in-first-out (FIFO) method. (13 marks) 1.2 Ricey Wholesalers sells 8 000 bags of rice each year. The inventory holding cost of one bag of rice is R5. The cost of placing an order for stock is estimated at R160. 1.2.1 Calculate the EOQ. (4 marks) 1.2.2 Calculate the number of orders that should be placed per annum. (3 marks) (Round off calculations to the nearest whole number.)

Answer 1

Perpetual FIFO: RECEIPT OF GOODS ISSUE OF GOODS INVENTORY BALANCE DATE ost per Units ost per Units ost per Inventory UnitsBalance Units Units Units 220 220 220 220 230 April. 1 600 250 300 a 300 a 132000 55000 66000 66000 460000 526000 345000 350 50 2000 April. 17 230 2000 a April. 20 April. 21 April. 30 TOTAL 1500 1300 500 230 230 230 800 200 299000 800 115000 115000 value of closing inventory -115000 12.1 EOQ=square root of [(2 x demand x ordering costs) ÷ carrying costs] -square root of [(2 x 8000 x 160)-5] 715.5 4 or 716 Bags 1.2.1 Number of orders that should be placed per annum-Annual Demand/EOQ -8000/716 =11 orders