O-LevelAccountingAnalysis and interpretation7707/21 · May/June 2012 · Q420 Marks
Ashok provided the following information for the year ended 31 March 2012: $ Revenue (sales) 120 000 Inventory 1 April 2011 22 500 Inventory 31 March 2012 26 500 Gross profit/sales 20% Net profit/sales 8% REQUIRED
- (a)(i)Calculate for the year ended 31 March 2012: Cost of sales[3]
- (a)(ii)Purchases[3]
- (a)(iii)Expenses[3]
- (b)Calculate to two decimal places the rate of inventory (stock) turnover for the year ended 31 March 2012.[3]
- (c)Suggest two ways in which Ashok might increase his rate of inventory (stock) turnover.[2]
- (d)Ashok is investigating a possible error in the valuation of the closing inventory on 31 March 2012. The revised valuation may be $30 000. Calculate the profit for the year if the closing inventory is valued at $30 000.[3]
- (e)State three disadvantages of holding too much inventory.[3]
Mark scheme
Marking points from the official mark scheme (May/June 2012). The mark or mark type is shown in brackets.
- [3] Cost of sales $120 000 × 100/125 = 96 000
- [1] Opening inventory $22500
- [2] Purchases $100000
- [1] Closing inventory $26500
- [3] Expenses $120000 x (20% – 8%) = $14 400
- [1] Inventory turnover 96 000 / ((22 500 + 26 500)/2) = 3.92 times
- [1] Reduce inventory levels
- [1] Reduce mark up to be more competitive
- [1] Promotions such as advertise products
- [1] Offer cash discounts to encourage sales
- [1] Revised profit $9 600
- [1] + ($30 000 – $26 500)
- [1] = $13 100
- [1] Deterioration of inventory
- [1] Obsolescence
- [1] Space required for storage
- [1] Cost of storage
- [1] Risk of theft
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