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The store owner provided the following information for 2017.
Inventories as of 1 January $138 600
Purchases $716100
Inventories as of December 31 $149100
Standard gross margin of 30%
Based on this information, what should be the store’s profit for 2017?
A) $ 2 352 000
B)$ 1 038 000
C)$ 917 280
D)$ 1 008 000
In this question
(138000+716100-149100)x100/70=1 008 000
Why there used 70 not 30?You have either copied the question wrongly, or there is a mistake in your book.
1,008,000 is not the profit at all – it is the revenue (sales).If the margin is 30% then for every $100 sales, the profit is $30 and therefore the cost is $70.
So for every $70 cost, the sales will be $100. Therefore the total revenue is 100/70 multiplied by the total cost.
I do suggest that you watch my free lectures on mark-ups and margins.
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