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Hi Sir
I have this question from BPP text. Would need some explaination.
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:
$ $
Sales 281,250
Opening inventory at cost 183,600
Purchases 249,200
432,800
Closing inventory at cost 204,600
228,200
Gross profit 53,050
Using this information, what inventory loss has occurred?
A $61,050
B $87,575
C $40,700
D $110,850The ans is C
I couldn’t understand how they calculated out the ans. Could you kindly explain pls?
The profit is 50% of the cost and therefore the sales are 150% of cost.
Therefore the cost of sales in this example is 100/150 x 281,250 = 187,500.
The opening inventory plus purchases are 183,600 + 249,200 = 432,800.
Therefore the closing inventory should be 432800 – 187500 = 245300.However it is only 204600. Therefore the inventory lost = 245300 – 204600 = $40,700.
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