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Please tell me how the purchase figure is derived in the following mock question?
A company sells goods at a mark up of 40% and closing inventory was valued at $390,050. That represented an increase of 22% when compared with the value of the opening
inventory. If revenue for the year was $1,283,853, what was the value of purchases for the year?$1,002,848
$987,374
$856,122
$840,648
The correct answer happens to be b) ie $987,374
Please guide me with the calcualtionsHi,
Cost of sales for the year is purchases less opening stock add closing stock so you need to find these figures.
Closing inventory is given as £390,050
This is a 22% increase on opening inventory so:
Opening inventory is £390,050/1.22 = 319,713There is a mark up of 40% so you need to take this out of revenue to get cost of sales:1,283,853/1.4 = 917,039
Then adjust for opening and closing stock:
917,039 – 319,713 + 390,050 = 987, 374
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