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Hello John, I was hoping you could help me with this question please? I am using BPP revision kit and there is a question No 20.6
A sole trader fixes her price by adding 50 per cent to the cost of all goods purchased. On 31 October 20X3 a fire destroyed parts of the inventory.
Her trading account for the year ended 31 October 20X3 is the following:
Sales 281,250
Opening inventory 183,600
Purchases 249,200
Closing inventory 204,600 (giving COS figure of 228,200)
Gross profit 53,500What inventory loss has occurred?
And in the answer workings they calculate:
1. COS as 281,250 x 2/3=187,500
2. 228,200 – 187,500=40,700Where did they get the 2/3 from? What do they represent?
Thank you in advance. And thank you very much for your lectures – they are a great help!
Natalia
The price is fixed by adding 50% to the cost.
So for every 100 cost, the profit is 50 and the selling price is 150.Putting it the other way round, for every 150 selling price the cost is 100.
So the cost is always 100/150 time the selling price. 100/150 is the same as 2/3.
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