FAC1501 ASSIGNMENT 1
QUESTION 1
Date Details Units Cost Total
price Cost
per
unit
1 Opening 1000 R25 R25 000
December inventory
5 Sales (400) R25 (R10000)
December
10 Purchases 1080 R27 R29 160
December
15 Sales (400) R26,29 (R10516)
December
16 Sales (600) R26,29 (R15774)
December
20 Returns (200) R26,29 (R5258)
December
480 R12612
Calculations
Step 1: Calculate the total cost of inventory after the purchase on December 10
Initial inventory: 1,000 units x R25 = R25,000
Issued to production on December 5: 400 units x R25 = R10,000
Remaining inventory: 600 units x R25 = R15,000
Purchased on December 10: 1,080 units x R27 = R29,160
Total inventory after purchase: 600 units + 1,080 units = 1,680 units
Total cost: R15,000 + R29,160 = R44,160
Weighted average cost per unit: R44,,680 units = R26.29
Step 2: Calculate the cost of inventory issued to production
December 15: 400 units x R26.29 = R10,516
Remaining inventory: 1,680 – 400 = 1,280 units
Value of remaining inventory: R44,160 – R10,516 = R33,644
, December 16: 600 units x R26.29 = R15,774
Remaining inventory: 1,280 – 600 = 680 units
Value of remaining inventory: R33,644 – R15,774 = R17,870
Step 3: Calculate the value of inventory returned to the supplier
200 units returned, purchased at R27 per unit, but we’ll use the weighted average cost per unit:
Value of units returned: 200 units x R26.29 = R5,258
Step 4: Calculate the value of closing inventory
Remaining inventory: 680 – 200 = 480 units
Value of remaining inventory: R17,870 – R5,258 = R12,612
Value of closing inventory: 480 units x R26.29 = R12,619.20
QUESTION 2
2.1 Current Ratio
Mmekwa Ltd's current ratio dropped from 15.8:1 (2023) to 11.1:1 (2024), but remains way above the
industry average of 3:1. This suggests the company has more than enough current assets to cover
liabilities, but might be holding excess liquidity.
2.2 Quick Ratio
Quick ratio decreased from 9.7:1 (2023) to 6.4:1 (2024), still much higher than the industry average of
2:1. Mmekwa Ltd has strong liquidity even excluding inventory.
2.3 Debtors' Collection Period
Collection period increased slightly to 49 days (2024) from 45 days (2023), and is above the industry
average of 30 days. Mmekwa Ltd might need to tighten credit policies.
2.4 Creditors' Settlement Period
QUESTION 1
Date Details Units Cost Total
price Cost
per
unit
1 Opening 1000 R25 R25 000
December inventory
5 Sales (400) R25 (R10000)
December
10 Purchases 1080 R27 R29 160
December
15 Sales (400) R26,29 (R10516)
December
16 Sales (600) R26,29 (R15774)
December
20 Returns (200) R26,29 (R5258)
December
480 R12612
Calculations
Step 1: Calculate the total cost of inventory after the purchase on December 10
Initial inventory: 1,000 units x R25 = R25,000
Issued to production on December 5: 400 units x R25 = R10,000
Remaining inventory: 600 units x R25 = R15,000
Purchased on December 10: 1,080 units x R27 = R29,160
Total inventory after purchase: 600 units + 1,080 units = 1,680 units
Total cost: R15,000 + R29,160 = R44,160
Weighted average cost per unit: R44,,680 units = R26.29
Step 2: Calculate the cost of inventory issued to production
December 15: 400 units x R26.29 = R10,516
Remaining inventory: 1,680 – 400 = 1,280 units
Value of remaining inventory: R44,160 – R10,516 = R33,644
, December 16: 600 units x R26.29 = R15,774
Remaining inventory: 1,280 – 600 = 680 units
Value of remaining inventory: R33,644 – R15,774 = R17,870
Step 3: Calculate the value of inventory returned to the supplier
200 units returned, purchased at R27 per unit, but we’ll use the weighted average cost per unit:
Value of units returned: 200 units x R26.29 = R5,258
Step 4: Calculate the value of closing inventory
Remaining inventory: 680 – 200 = 480 units
Value of remaining inventory: R17,870 – R5,258 = R12,612
Value of closing inventory: 480 units x R26.29 = R12,619.20
QUESTION 2
2.1 Current Ratio
Mmekwa Ltd's current ratio dropped from 15.8:1 (2023) to 11.1:1 (2024), but remains way above the
industry average of 3:1. This suggests the company has more than enough current assets to cover
liabilities, but might be holding excess liquidity.
2.2 Quick Ratio
Quick ratio decreased from 9.7:1 (2023) to 6.4:1 (2024), still much higher than the industry average of
2:1. Mmekwa Ltd has strong liquidity even excluding inventory.
2.3 Debtors' Collection Period
Collection period increased slightly to 49 days (2024) from 45 days (2023), and is above the industry
average of 30 days. Mmekwa Ltd might need to tighten credit policies.
2.4 Creditors' Settlement Period
