(I) Mention any two advantages of centralized purchasing. [2] (II) Following are the store related transactions for the month of Magh. Magh 1: Opening inventory 300 units @ Rs. 5 each माघ (Magh)15:…

(I) Two Advantages of Centralized Purchasing

Centralized purchasing refers to the process where an organization consolidates all its purchasing activities under a single department or authority. The following are two key advantages:

1. Economies of Scale

   • Centralized purchasing allows an organization to buy in bulk, enabling it to negotiate better prices with suppliers due to larger order quantities.
   • This reduces per-unit costs and maximizes discounts, leading to cost savings.

2. Better Control and Coordination

   • A single purchasing department ensures standardized procurement policies, reducing duplication of efforts and ensuring consistency in quality and pricing.
   • It also improves inventory management by maintaining optimal stock levels and reducing excess inventory costs.

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(II) Calculation of Cost of Closing Inventory and Cost of Goods Sold (LIFO Method)

Given Data:

• Opening Inventory (Magh 1): 300 units @ Rs. 5 each
• Purchase (Magh 15): 500 units @ Rs. 6 each
• Purchase (Magh 25): 400 units @ Rs. 7 each
• Total Sales (Magh): 900 units

Step 1: Determine Total Units Available for Sale

$$\text{Total Units}=\text{Opening Inventory}+\text{Purchase (Magh 15)}+\text{Purchase (Magh 25)}$$ $$=300+500+400=1200\text{ units}$$

Step 2: Determine Closing Inventory

$$\text{Closing Inventory}=\text{Total Units}-\text{Units Sold}$$ $$=1200-900=300\text{ units}$$

Step 3: Apply LIFO (Last-In-First-Out) Method

Under LIFO, the most recently purchased units are sold first. The remaining units in closing inventory are the earliest purchases.

• First, sell the latest purchase (Magh 25):

  • 400 units @ Rs. 7 each → 400 units sold
  • Remaining units to sell: $900-400=500$ units

• Next, sell the next purchase (Magh 15):

  • 500 units @ Rs. 6 each → 500 units sold
  • Remaining units to sell: $500-500=0$ units

• Finally, sell the opening inventory (Magh 1):

  • 0 units remain to be sold (since all 500 units from Magh 15 were already sold).

However, since total sales are 900 units, and we have already accounted for 900 units (400 from Magh 25 and 500 from Magh 15), the closing inventory consists of the opening inventory (300 units @ Rs. 5).

Step 4: Calculate Cost of Goods Sold (COGS)

$$\text{COGS}=(\text{400 units}\times \text{Rs. 7})+(\text{500 units}\times \text{Rs. 6})$$ $$=2800+3000=\text{Rs. 5800}$$

Step 5: Calculate Cost of Closing Inventory

$$\text{Closing Inventory}=300\text{ units}\times \text{Rs. 5}=\text{Rs. 1500}$$

Final Answer:

• Cost of Goods Sold (LIFO): Rs. 5800
• Cost of Closing Inventory (LIFO): Rs. 1500