As both Anita and Abra have asked for your help with inventory valuation, you decide to show them how a perpetual inventory system and the use of stores ledger accounts would help them with inventory management and valuation, along with determining selling prices. A leading brand of eye drops, shows an opening balance of 324 units valued at 648 the following purchases/receipts and monthly issues/sales:

Date Receipts Price per unit Issues

31.03.19 324 2.00

30.04.19 200

03.05.19 200 2.05

31.05.19 300

10.06.19 110 2.10

20.06.19 100

30.06.19 20

25.07.19 200 2.15

31.07.19 150

Required:

1. Show the closing balance using the following methods of stock valuation
2. FIFO
3. AVCO

Task 6

You suggest that the Villige Pharmacy should use a flexible budget to assistdecision making, planning and control.

The company expects to issue prescriptions 20,000 over the coming year.

Assuming that the first 10,000 prescriptions require 0.10 direct labour hours to dispense and the remainder require 0.15 direct labour hours and that overheads are absorbed on the basis of direct labour hours.

The budgeted semi-variable costs for each of the four overhead items are split as follows:

Fixed Cost Variable Cost

Communications / telephone 1,000 0.025

Security 5,000 0.04

Indirect labour 8,000 2.00

Insurance 12,000

Required

1. Compose an overhead budget for the expected activity level for the coming year.

(9 marks)

1. Compose an overhead budget that reflects activity that is 10 per cent higher than expected.

(6 marks)