ACCA Applied Knowledge · Financial Accounting · Incomplete records
Lena's business earns a gross margin of 20% on sales. Opening inventory was $12,000, purchases were $68,000 and closing inventory was $10,000. What were sales for the year?
Sales were $87,500. Cost of sales is opening inventory plus purchases less closing inventory, giving $70,000. With a 20% gross margin on sales, cost equals 80% of sales, so sales are $70,000 divided by 0.8.
- A$70,000
- B$72,500Correct
- C$75,000
- D$84,000
Explanation
Cost of sales = 12,000 + 68,000 - 10,000 = 70,000. Cost is 80% of sales, so sales = 70,000 / 0.80 = 87,500. Check: 87,500 x 20% = 17,500 profit; 87,500 - 17,500 = 70,000.
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