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October 28, 2015 at 11:37 am
I am still confused with this question.
stion 4 Chapter 18 Silver Co made sales of $193,200 during the year ended 31 August X1. Inventory decreased by $13,200 over the year and all sales were made at a mark up of 42%. What was the cost of purchases during the year, to the nearest $1,000?
A $149,000 B $136,000 C $123,000 D $109,000
John Moffat says
October 28, 2015 at 12:21 pm
If there is a mark-up of 42% then for every 100 cost, the profit is 42 and the sales are 142.
So for sales of 193200, the cost must have been 100/142 x 193200 = 136,056
Of that cost, 13,200 came out of inventory and so the remainder of 122,856 were purchases.
October 28, 2015 at 12:47 pm
Thank you Sir, I got it now
October 28, 2015 at 3:21 pm
You are welcome
September 30, 2015 at 1:32 am
Please do explain question 2 & 3? It’s very confusing too me. I’m having a lot of trouble with it.
September 30, 2015 at 7:27 am
Question 2: We know the inventory on 4 June and we need to work backwards to find out what it was on 31 May. So we need to subtract any purchases made between the dates (8,600) because they were not there on 31 May; we need to add back the cost of any sales made between the dates (70% x 14,000) because they were there on 31 May; and we need to add back any returns made between the dates (700) because they were there on 31 May.
So inventory on 31 May = 836,200 – 8,600 + 9,800 + 700 = 838,100
Question 3: Revenue was understated, so actual revenue is 10,000 higher at 90,000; and actual profit is 10,000 higher at 30,000.
Closing inventory was overstated, so revenue is not affected and stays at 90,000, but cost of sales in understated and therefore profit overstated by 5,000 and should be 25,000.
So profit percentage = 25,000/90,000 = 27.8%
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