Stock Concepts
Task 1
You may open your box of Smarties now, but don’t eat them yet!
a. Assume that all your Smarties are very rare and you can sell them for $500 each.
Complete the table below showing how much revenue you will make if you sell the following
quantities.
Quantity sold
Revenue earned
1 Smartie
3 Smarties
7 Smarties
The full box
b. Explain the relationship between the quantity sold and the revenue earned.
c. Each Smartie that you have available for sale was purchased at a cost price of $300.
Complete the table below showing the cost of sales for the following quantities sold.
Quantity sold
Cost of sales
1 Smartie
3 Smarties
7 Smarties
The full box
d. Explain the relationship between the cost of sales and the quantity sold.
e. Define the term cost of sales.
f. When selling stock it is important to sell it for more than we paid for it. Define the term
gross profit.
g. Complete the table below showing the gross profit earned when the following quantities have
been sold. (Continue to assume that we sell them for $500 each and that they cost $300 each.)
Quantity sold
Gross profit
1 Smartie
3 Smarties
7 Smarties
The full box
The revenue earned from the sale of Smarties must be considered in relation to the cost of sales in order to
determine gross profit.
h. The cost of sales is only one expense that a business has to pay.
Using the expenses shown below, complete the following Income Statement, assuming that you
sell all your Smarties.
MS ROSSER’S SMARTIE SHOP
Income Statement for the month ended 30 September 2015
Revenue
Less
Gross profit
Less Expenses
Rent
$400
Wages
250
Office Expenses
180
Advertising
1 200
Delivery Expenses
95
Net _______
$
i. With reference to one qualitative characteristic, justify the inclusion of the delivery expenses in
the Income Statement.
Task 2
In the competitive world market, demand for Smarties varies a lot. Customer demands for different
colours vary according to the fashions and trends of the season. You have set the following prices for
the coming months.
a. Complete the following table, showing the gross profit per item for each colour sold.
Colour
Cost price
Selling price
Brown
$150
$250
Green
$200
$300
Yellow
$250
$350
Orange
$300
$400
Purple
$400
$600
Pink
$450
$750
Blue
$600
$900
Red
$1 000
$1 400
Gross profit per
Smartie
b. Using your packet of Smarties, calculate the following items, assuming that all your Smarties are
sold.
Working space
Answer
Revenue earned
Cost of sales
Gross profit
c. Complete the Income Statement below using the information you calculated in Question 2b.
_________________________ SMARTIE SHOP
Income Statement for the month ended 30 September 2010
Revenue
Less
Gross profit
Less Expenses
Wages
$500
Security Expense
400
Office Expenses
560
Advertising
450
Vehicle Expenses
100
Net _______
$
‘Cooking the Books’
Paige Turner owns a specialist bookshop in Mountain Gate called ‘Cooking the Books’. Paige
purchases a range of cookbooks from Roland Butta, a small publisher of cookbooks in country
Victoria. On 31 January 2016 Paige had a number of different books in stock but in February she
decided to monitor the progress of her favorite volume: Fry Me to the Moon. At 31 January 2016 she
had $2 200 of stock of this book in her shop.
Transactions involving the book Fry Me to the Moon for February 2016 were as follows:
Feb. 1
Purchased 100 copies at $10 each, plus GST of $1 per copy, on account (Invoice 124)
3
Sold 15 copies to Wangaratta TAFE for $330 (GST included) (Invoice S17)
8
Weekly cash sales totalled 320 copies at $20 per copy (plus GST) CRR
10
Purchased 80 new books at $12.10 each, including $1.10 GST. (Invoice 129)
11
Sold 35 books at $21 per copy, plus GST of $2.10 per copy, to Endeavour Hills College.
(Receipt 615)
15
Weekly sales of 24 books for $504 plus GST of $50.40. CRR
15
Paige took a book home for her sister’s birthday. (Memo 7)
17
Paige purchased 150 books for $12 each, plus GST. (Invoice 136)
18
The publisher, Roland Butta, advised Paige that due to spiralling costs the latest books
would be $15 each, but as she is a loyal customer she could have 75 books for $13 plus
GST if she ordered immediately. Paige took advantage of this offer. (Invoice 139)
21
Paige increased the sale price to $24.75, including GST. She sold 100 copies to the South
Australian Education Department. (Invoice S40)
23
Paige made a donation of five copies of the book as raffle prizes for a local netball club
fundraiser. The netball club informed its patrons that the books were valued at $30 each.
(Memo 10)
25
Weekly sales were 117 units. Revenue for these sales was $2 632.50. CRR
28
Purchased 200 copies for $15 each plus GST for cash. (Cheque 995)
29
The Perth Institute of Gastronomy received a quote from Paige offering books at $19.95
each, including GST. A minimum order quantity of 80 is required.
29
A physical stocktake revealed that there were 261 books in stock. (Memo 12)
REQUIRED
1 Enter the transactions for the book Fry Me to the Moon onto the stock card.
2 Calculate the cost of sales for this book for February 2016
3 Explain why the figure calculated in Question 2 may not necessarily be the Cost of Sales figure
reported in the Income Statement for February 2016
4 Explain what is meant by the term ‘perpetual inventory system’.
5 List three reasons that may have accounted for the stock loss identified by the physical
stocktake.
6 Explain why credit purchases on 1 February and 10 February 2016 did not have consecutive
invoice numbers.
7 With reference to an accounting principle, explain your treatment of the transaction in Memo 7
on 15 February 2016
8 Paige Turner feels that the cost price of her stock of books should really be at least 10% more
than it actually is in order to reflect the high-quality paper used. With reference to a qualitative
characteristic and an accounting principle, explain why she should not amend the cost price of
the books.
Question 1
Stock Item:
Fry Me to the Moon
Cost Method:
Stock Code:
CB 0001
Supplier:
IN
Date
Feb. 1
Details
Balance
Qty
Unit
cost
__________
Roland Butta
OUT
Value
Qty
Unit
cost
BALANCE
Value
Qty
275
Unit
cost
Value
8
2 200
Question 2
Calculation
Cost of Sales $___________
Question 3
Explanation
Question 4
Explanation
Question 5
Reason 1
Reason 2
Reason 3
Question 6
Explanation
Question 7
Explanation
Question 8
Qualitative characteristic
Explanation
Accounting principle
Explanation