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QUESTION TWO An audit senior at your place has requested you to undertake a review of the client's inventory system by determining the critical inventory
QUESTION TWO An audit senior at your place has requested you to undertake a review of the client's inventory system by determining the critical inventory levels, economic order quantity, cost of issues and valuation of closing inventory. The client file contains the following schedules in relation to inventory: Minimum Usage 500 units per working week Maximum Usage 3000 units per working week Average Usage 2 500 units per week Lead time 10 - 20 days Ordering costs K360 per order Purchase cost K5 per unit Holding cost 8% of purchase costs per year Required (a) Calculate the following: (0) Inventory Re-order level (10) Minimum inventory level (iii) Economic order quantity (iv) Maximum inventory levels [2 marks] [2 marks] [2 marks] [2 marks] QUESTION ONE Katwa Mutale is a general trader engaged in selling second hand vehides. Mutale normally buys his cars online from Trade Cars for Zed, collects them from the border when they arrive and parks them in his yard for dient viewing. On 1 November 2019, Mutale had three (3) Corollas in the yard. These were valued at K11 400 each. During November 2019, 12 more Corollas were delivered as follows: Date Cars Received Purchase Cost/Car 10 November K11 875 20 November 4 K13 300 25 November 4 K14 250 Corollas sold during November were as follows: Date Cars Sold Sales Price Car 14 November 5 K19 000 21 November 5 K10 000 5 1 28 November K19 000 Required Calculate the gross profit from selling the cars in November 2019, applying following principles of inventory valuation: 6 First In First Out (FIFO) [6 marks] () Last In First Out (LIFO) [6 marks] Weighted Average (AVCO) (8 marks]
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