QUESTION TWO A large local govemment authority places orders for various stationery items at quarterly intervals.in respect of an item of stock coded A32, data are: annual usage quantity 5000 boxes, minimum order quantity 500 boxes and cost per box is K2 Usage of material is on a regular basis and on average, half of the amount purchased is held in inventory. The cost of storage is considered to be 25% of the inventory value. The average cost of placing an order is estimated at K12.50. he chief executive of ite authority has asked you to review the present situation and to consider possible ways af effecting cost savings. You are required to (a) tabulate the costs of storage and ordering item A32 for each level of orders from four to twelve placed per year (o) ascertain from the tabulation the number of orders which should be placed in a year to minimize these costs (e) produce a formula to calculate the order level which would minimize these osts your answer should expiain each constituent part of the formula and their relationships; (d) give an example of the use of the fomula to confirm the calculation in (b) above; (e) calculate the percentage saving on the annual cost which could be made by using the economic order quantity system; (f) suggest two other approaches which could be introduced in ordier to reduce the presenit cost of storage and ordering of stationery. (TOTAL 24 MARKS) SECTION A:COMPULSORY 2UDS IW QUESTION ONE(A) MCK Itd trade in a single product called 'School of hard knocks' and maintains perpetua inventory system. The company is currently valuing its steck on LIFO basis but is now proposing to change to the FIFO method. The company records disclose that 2.000 units were in stock at the beginning of the curtent period, and valued on the ba of a receipt o 5,000 unts priced af K250 per unit of which 4,000 had been sold before the end of the period, plus 500 from a delivery in 1999 when th cost was K2.00 per unit, plus 500 purchased in 1078 when the cost was K0.50 per unit The folowing transactions took place during the. current period of January 2000 to June 2000 January Sold 1,500 units at K4 each. Fabruary received 10,000 units at K2.50 each March sis Sold 8,000 units at K4.00 each Received 15,000 units at K2.70 each Received 6,500 urits at K2.80 each Sold 22,000 units at K4.00 each. Ap Ma June Mr Katoloshi Bwalya has suggested that the company values opening inventory at FIFO basis and Closing Inventory at LIFO basis for the sake of consisiency. Required: (a) Calculate the trading profit for the period under review using Mr Katoloshi's suggestion and comment. (show al your workings) (b) Describe how LIFO,FIFO and Average Cost affects the cost of goods sold,the valuation of stock and trading proft f) When purchase prices are rising (ii) When purchase prices are falling QUESTION ONE (B) Describe the five purposes of accounting system(10 Marks) (20 Marks) (5 Marks) (5 Marks) (Total 40 Marks) SECTION B:ATTEMPT ANY THREE (3) QUESTIONS QUESTION TWO (i)In a table form,indicate the purpose, source and destination(s) of the following documents (a) Goods received note (3 Marks) (b) Purchase requisition (3 Marks) (c) Delivery note . (d) Invoice (3 Marks) (3 Marks) (3 Marks (3 Marks) (e) Quotation (f) Purchese order (l) Give two examples of stock out costs (2 Marks) (Total 20 marks) YQUESTION THREE (a) What do you understand by each oi the following terms? include two examples of each cost in your answer () Fixed cost (ii) Variable cost 3 marks) marks) (i) Sermi-variable cost. (3jmarks)