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Hello Mr. Mike,This question got me rather confused, could please help me out? I’d done (7.5% *24m)-1.5% *32m)=1.32m and the answer isn’t there.
Flyscreen’s retail dept.has been asked to give some thought to the likelihood of goods sold being returned. Historically this has not been a problem-over the previous 25yrs returns had consistently been around the 7%-8% mark & a provision in anticipation of 7.5% of retail sales had been made.
This year, following much stricter quality control methods being applied in the product dept., it is improbable that returns will exceed 2% of sales & could even be as low as 1% of sales and even returns will more likely be able to be resold.
Last yrs’ revenue were $24m probably as a result of the improvement in Flyscreen’s reputation for quality goods, the sales fig.this yr has risen to $32m & GPM improved from 20%-25%.
What fig.will appear in the SOPL for the movement in Flyscreen;s prov for sales revenue?I agree with your 24 x 0.075 and with 32 x 0.015
But don’t we have to take account of the ‘and even returns will more likely be able to be resold.’ comment
What answers are available?
Sorry sir for a rather late response. I wasn’t feeling too well.
The answers provided are: 1,160,000 Cr; 360,000cr; Nil-less than 5% probability of returns.It would have been so much easier if you had given me full information to begin with!
Last year: $24,000,000 x 7.5% x 20%
Last year: Revenue x % returns x lost profit = $360,000This year: $32,000,000 x 2% x 25%
This year: Revenue x % returns x lost profit = $160,000Movement of $200,000
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