ExpertHard2 marksShort Answer
ACCA · Question 27 · Preparing Basic Financial Statements
A business has a uniform gross profit mark-up of 25% on cost. During the year, sales were $250,000, opening inventory was $30,000, and closing inventory was $40,000. What were the purchases for the year? (Enter numbers only)
A business has a uniform gross profit mark-up of 25% on cost. During the year, sales were $250,000, opening inventory was $30,000, and closing inventory was $40,000. What were the purchases for the year? (Enter numbers only)
How to approach this question
1. Convert mark-up to margin or use the formula Cost of Sales = Sales / 1.25. 2. Use the Cost of Sales formula (Opening Inv + Purchases - Closing Inv = COS) to find Purchases.
Full Answer
Mark-up is 25% on cost, so Sales = 125% of Cost of Sales.
Cost of Sales = $250,000 / 1.25 = $200,000.
Cost of Sales = Opening Inventory + Purchases - Closing Inventory.
$200,000 = $30,000 + Purchases - $40,000.
$200,000 = Purchases - $10,000.
Purchases = $210,000.
Common mistakes
Treating the 25% mark-up as a 25% margin on sales (which would give COS of $187,500).
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