Shilongo & Shikongo company Ltd has just opened a bookshop. They buy management accounting textbooks from Van Schaik publishers and sell them to the students who are studying towards accounting qualifications at institutions of higher learning in Namibia. You have been appointed as inventory accountant at the bookshop, where inventory is a major problem because of high storage costs. The company also experiences a serious problem because it does not have a record about when the books are bought or sold. Now, Shilongo and Shikongo company Ltd wants to install an efficient inventory control and pricing system within the company and seeks your advice on a number of issues. Shilongo & Shikongo company Ltd uses First-In- First Out (FIFO) method for inventory valuation.

The textbook price has fluctuated over the period since June 2019. You are given the following information:

1 July:	Textbooks on hand: 500 @ total of N$225 000.
2 July:	Cash purchases from Van Schaik Publishers: 150 textbooks @ N$500 per textbook.
10 July:	Credit purchases from Van Schaik Publishers: 50 textbooks @ total of N$27 500.
12 July:	Returns to Van Schaik Publishers 50 textbooks that was purchased on the 2 July because the box was damaged when bought.
13 July:	550 textbooks were sold @ N$800 per textbook.
20 July:	Textbooks returned to Van Schaik Publishers on the 12 July were replaced.
25 July:	Administrative and selling expenses of N$90 000 was paid with credit card.

 

Additional information:

• The costs to place an order consist of telephone and stationery which amounts to N$250 and N$300, respectively.
• It takes Van Schaik Publishers 15 days to effect delivery from the date the order is placed online.
• Annual storage cost per unit is N$75.
• The company’s annual average demand for the textbooks is 49 680 books.
• The company operates for 345 days a year.
• The company has decided not to keep minimum inventory of textbooks because the supplier always delivers on time.
• The company has also changed its policy of applying FIFO in measuring inventory and it has opted for the Weighted Average method of measuring inventory.

Required

Calculate the level at which Shilongo & Shikongo company Ltd needs to procure additional textbooks from Van Schaik Publishers to avoid stockouts.

Answer rating: 100% (QA)

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