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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 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?
Cost of sales = $281,250*2/3 = $187,500
Loss of inventory = $228,200 – 187,500 = $40,700
How did this 2/3 come?
The mark up is 50%.
So for every 100 cost, the profit is 50 and the selling price is 150.
Putting it the other way round, for every 150 of sales, the cost is 100.
Therefore the cost is always 100/150 times the sales. 100/150 is the same as 2/3.
Have you watched my free lectures on mark-ups and margins?