MAC 1501/102 QUESTION 2 (34 marks) (40 minutes) This question consists of two separate parts, both of which must be answered. PART 2.1 (14) Orange (Pty) Ltd is a retailer and uses a periodic inventory system. The following information relates to the financial year ended 31 July 2019. Sales. 1 680 000 Opening inventory of merchandise... 140 000 Closing inventory of merchandise. 160 000 A mark-up of 20% on cost is applied consistently to establish the selling price. REQUIRED: 2.1.1 Distinguish between the perpetual and periodic inventory systems of a retailer. 2.1.2 Calculate the following for Orange (Pty) Ltd: 0 Total purchases for the year (ii) Gross profit for the year Hint: To answer question 2.1.2 use the following format (copy it as is to your answer book): Calculations Opening inventory Given Add: Purchases (0) Available for sale Less: Closing inventory Given Cost of sales Sales Less: Cost of sales Gross Profit (6) 2.1.3 Prepare an adjusting closing joumal entry for Orange (Pty) Ltd to record the cost of sales for the year. PART 2.2 (20) Shades Limited makes eyeglass lenses. The company is preparing its labour cost budget for direct labour employees for the forthcoming year. Twenty (20) production workers are currently employed in the production department. Budgeted production for the forthcoming year is budgeted at 95 000 units (of eyeglass lenses). Each unit of eyeglass lens requires twenty (20) minutes of manual work and ten (10) minutes of machine operating time performed by each worker. The normal wage rate for all production employees is R68 per hour (inclusive both manual and machine operating hours). The duration of the working week is 45 hours (Monday to Friday) and there are 52 weeks in the year. The firm is closed for two weeks in the year and no production takes place during this recess period. There are 12 public holidays per annum and of which two (2) falls on a Sunday Each employee enjoys a one-hour lunch every working day plus two weeks' vacation pay for the recess period and two weeks' pay as a bonus. Idle time is estimated at 5% of available hours for production. The following compulsory deductions are made from the employees' total wages: PAYE... 18% of taxable wages Pension... 8% of normal wages UIF 1% of total gross wage Medical aid. 3% of normal wages The following contributions are made by the company Pension... UIF 14% of normal wages (including vacation pay) 1% of total gross wages 6% of normal wages (including vacation pay) Medical aid.... Should the production time required for the 95 000 units exceed the available time for production, Shade Limited will use the overtime to cover the shortages. Overtime is remunerated at one and half (1,5) times the normal rate