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February 20, 2016 at 9:25 am
A sole trader fixes her prices by adding 50 per cent to the cost of all goods purchased. On 31 October 20X3 a fire destroyed a considerable part of the inventory and all inventory records.
Her trading account for the year ended 31 October 20X3 included the following figures:
Opening inventory at cost 183,600
Closing inventory at cost 204,600
Gross profit 53,050
Cost of sales = $281,250 x 2/3 = $187,500
Loss of inventory = $228,200 – 187,500 = $40,700
so why is it $281,250 x 2/3 why do we need to multiply 2/3?
John Moffat says
February 20, 2016 at 10:17 am
In future you must ask questions like this in the Ask the Tutor Forum, and not as a comment on a lecture.
For every $2 cost, then add on a profit of $1 (50% x $2), and get a selling price of $3.
So for every $3 selling price, the cost is $2. So the cost is always 2/3 x selling price.
February 22, 2016 at 9:26 pm
I almost there!
this is a topic requires a private tutor!
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
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%
September 27, 2015 at 1:58 pm
I thank you for all the answers above and for your patience.
The answers were very helpfull. I found more info on this site than on class for F3 I participated within the firm.
September 27, 2015 at 2:43 pm
Thanks for the comment – I am please that you find the site useful 🙂
July 6, 2015 at 1:42 pm
Relating to Question 3. Why if the revenue has been understated by 10,000, then both revenue and profit will increase by 10,000 ?
If gross profit is 27,8% (as in answer), by adding $10,000 to the revenue shouldn’t we achieve 2,780 more gross profit ? (and not 10,000) ?
July 6, 2015 at 1:55 pm
At the moment, the profit is 20,000, the revenue is 80,000, and therefore the cost of sales must be 60,000.
However the revenue should be 10000 more. So the revenue should be 90,000, the costs are 60,000 (ignoring the error with the inventory) and therefore the profit should be 30,000.
More revenue automatically means more profit!
After dealing with the inventory error, the correct profit is 25,000. The correct revenue is 90,000 (as above). Therefore the correct gross profit percentage is 25,000/90,000 = 27.8%
Your last sentence does not make any sense – you are asked to calculate the % after correcting the errors.
July 6, 2015 at 4:06 pm
Thank you Sir, I think I get it. Learning with OpenTuition is a pleasure 🙂
July 6, 2015 at 4:21 pm
It’s great to hear that you enjoy it 🙂
June 15, 2015 at 3:08 am
Could you please help me out to solve the following question. A sole trader fixes her prices by 50 per cent to the cost of all goods purchased. on 31 October 20X3 a fire destroyed a considerable part of inventory and all inventory records.
Her trading account for year ended 31 October 20X3 included the following figures:
closing. inv 204,600
Gross profit 53050
June 15, 2015 at 7:12 am
In future please ask this sort of question in the Ask the Tutor Forum and not as a comment on a lecture.
The cost of sales should be 100/150 x 281,250 = 187,500.
At the moment (using the actual inventory that remains) the cost of sales is 228,200.
Therefore the inventory lost = 228,200 – 187,500 = 40,700
(I assume that is what the question wants – you do not say what is required 🙂 )
May 5, 2015 at 12:26 am
chapter 18 question 5
how could the answer be A.185 000
opening inventory is 380000
purchases is 480000
sales is 500000 (650000/130) x 100
the closing inventory should be 360000,
instead it is 220000 so 140 was destroyed in the fire. ho
May 5, 2015 at 7:48 am
The answer is 185,000 – you are wrong!
There is a gross profit margin of 30% and so the cost of sales is 70%x$650,000 = 455,000.
The closing inventory should be 380,000+480,000-455,000 = 405,000
In fact it is only 220,000, so the inventory destroyed is 405,000-220,000 = 185,000.
I suggest that you watch the lecture again. ho
May 5, 2015 at 11:05 am
Ooh no .. My apologies. Swear I saw mark up and not gross profit margin..much thanks
April 2, 2015 at 11:35 am
Good Morning John – Can you kindly give me some insight into test question 3. cheers
April 2, 2015 at 11:48 am
If the revenue has been understated by 10,000, then both revenue and profit will increase by 10,000.
If inventory has been overstated by 5,000, then cost of sales will be understated and therefore gross profit will be overstated. Revenue will not be affected.
February 24, 2015 at 6:15 pm
Good Evening sir. Kindly explain the mechanism (workings) that allows us to determine that some goods costing $2,500 have been stolen in queation 6. Thank you in advance.
February 24, 2015 at 6:28 pm
Could it be that the items stolen, having a value of $2,500 (and potential sales value of $5,000) represent the amount ”Stolen” ( lost in the process of doing business ) from the sales ? It all sounds glitchy here but I am still confused.
February 24, 2015 at 7:47 pm
The sales are 95,000. Because sales are two time the cost, it means the cost of the good sold must have been 47,500.
At the moment, the cost of sales is 40,000 + 60,000 – 50,000 = 50,000.
So it must mean that the goods stolen had cost 50,000 – 47,500 = 2,500
February 24, 2015 at 8:38 pm
I definitely thought so as I laid out a trading income. Thank you once again.
December 8, 2014 at 12:48 pm
Help with question 4 plzzzzz?
December 8, 2014 at 2:48 pm
The sales are 193,200, so the cost of sales were 100/142 x 193,200 = 136056.
Since inventory fell by 13,200, the purchases must have been 136056 – 13200 = 122856
December 9, 2014 at 12:09 am
Thanks alot….. i actually got tht answer but its not one of the choices so i thought i did something wrong….
December 9, 2014 at 12:11 am
Think you guys made a mistake…… 🙂
December 9, 2014 at 7:36 am
No, I think you made a mistake!
If you read the question it asks for the answer to the nearest $1,000 (which is $123,000)
December 9, 2014 at 10:51 am
opppss i missed tht, tht always happen with me, especially in a hurry.
September 13, 2014 at 4:36 pm
Can you please explain question 5 for me.
I inventory 380000, add purchases 480000, minus destroyed inventory 220000 = 640000
Margin % on sale 30% = 650000 / 1.3 = 500000 – 640000 = 140000 Answer B, but he answer is A.
I thinking i’m working out the / 1.3 wrong. Can you also explain how to work the algebraic formula for working this margin out.
September 13, 2014 at 5:39 pm
If there is a margin of 30%, it means that the profit is 30% of selling price.
So…..here, the profit is 30% x 650,000 = 195,000
The cost of sales is 70% x 650,000 = 455,000
The cost of sales = 380,000 + 480,000 – closing inventory.
So the closing inventory should be 405,000.
However the actual closing inventory is 220,000 and so the remainder must have been destroyed in the fire: 405000 – 220000 = 185,000.
Hope that is clear 🙂
September 13, 2014 at 8:41 pm
Thank you. Was getting confused in working the percentage out but very clearly explained. The 30% is profit so 70% is COS, will hopefully make is easier working the other answer out.
June 14, 2014 at 10:29 am
C is correct.
If sales were 281250, then cost of sales is 1/1.5 x 281250 = 187500.
Goods available for sale were 432800, so closing inventory should have been 432800 – 187500 = 245300.
Actual closing inventory was 204600, so lost inventory = 245300 – 204600 = 40700.
June 14, 2014 at 3:12 am
Question: A sole trader fixes her prices by adding 50% to the cost of all goods purchased. On 31 October 20X3 a fire destroyed a considerable part of the inventory and all inventory records. Her trading a/c for the year ended 31 October included the following. $ $ Sales: 281, 250. Opening inventory at cost: 183,600. Purchases: 249,200. Goods available for sales. 432,800. Closing inventory. (204,600) COGS. 228,200 Gross profit 53,050. What inventory loss has occurred? A. $61,050 B. $87,575 C. $40,700 D. $110,850 (my calculations gave me A but the answer according to the revision kit is C)
August 19, 2014 at 10:06 am
hows it worked out?
August 19, 2014 at 10:15 am
The workings are higher up this page (my reply has appeared above the question instead of underneath it 🙂 )
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