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Barry is a sole trader. He has calculated a cost of sales figure for the year, which is $342,000. Barry paid $8,030 into the business bank account for goods withdrawn for private use and this amount has been included within sales. The figure of $8,030 was calculated by adding a mark-up of 10% to the cost of the goods. His gross profit margin on all other goods sold was 20% of sales.
What is the total figure of sales for the year?A $401,640
B $402,370
C $418,375
D $426,405I wish to know the double entries plus the elaborate workings that are made to arrive at the calculation.
Thank you.
My workings are:
$8030 is not a sale. The way to handle it is to transfer the cost of the goods from purchases to drawings.
The goods must have cost 8030 x 100/110 = 7,300 (7300 + 10% = 8030)
This amount should be taken out of purchases and that would leave cost of sales at 342,000 – 7300 = 334700
These had a profit margin of 20% of sales:
Cost + Profit = sales
80 + 20 = 100 [Note 20/100 = GP = 20%)Therefore sales = 334700 x 100/80 = 418,375.
Thank you so much for the instant reply.
I got to know that interest on drawings are added to net profit while arriving for appropriation of profits. Why is it added instead being deducted?
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