QUESTION 3 (20 Marks)

3.1

REQUIRED:

Calculate the value of closing inventory as at 31 December 2019 and gross profit for the year ended 31 December 2019 using the weighted average cost method.

(Round off the average cost per unit to two decimal places and the income statement figures to the nearest Rand)

(9 marks) Use the format of the Statement of Comprehensive Income to present your answer.

INFORMATION:

Compu Mania, a cell phone accessory companys inventory records are presented in the table below:

Closing inventory of 220 units at R80 each on 31 December 2018

120 units at R88 were purchased on 15 March 2019

140 units at R90 were purchased on 15 July 2019

100 units at R94 were purchased on 10 September 2019

During the year (Jan-Dec 2019) 500 units were sold at R160 each

3.2

REQUIRED:

1. Calculate the incremental profit/loss after tax. (8 marks)
2. Determine the incremental return on sales if these new customers are accepted. (3 marks)

INFORMATION:

Osmans Stores is considering extending credit to some customers who may be at risk of defaulting in payment. Sales will increase by R620 000 if credit is granted to these customers. From the new accounts receivable generated, 8% is expected to be uncollectable. Additional collection costs will be 4% of sales, and the production and selling costs will be 65% of sales. The firm is subject to tax at 28%.