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ACCA Applied Skills · Financial Reporting · Preparation of single entity financial statements

Dalton Ltd makes all sales at a mark-up of 25% on cost. Opening inventory was $30,000, purchases were $210,000 and closing inventory was $40,000. What was the revenue for the year?

Revenue is $250,000. Cost of sales is opening inventory plus purchases less closing inventory, which is $200,000, and a 25% mark-up on cost multiplies this by 1.25.

  1. A$200,000
  2. B$250,000Correct
  3. C$262,500
  4. D$300,000

Explanation

Cost of sales = 30,000 + 210,000 - 40,000 = $200,000. Revenue = 200,000 x 125% = $250,000. The $200,000 option ignores the mark-up, and $300,000 wrongly divides cost by 0.8 incorrectly using margin logic... in fact it applies a 50% uplift. The 25% margin on sales would give 200,000/0.75 = 266,667, not an option.

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