Cost of goods sold and value of inventory question

Toby82

Hi,

I have my final accounts for sole trader and partnerships exam soon and I'm stuck on one question on the sample assessments its:


Calculate the Cost of goods sold for year ended 31st March 20x7

total sales were 66,000
total purchases were 59,120
a mark up of 20% on cost was used throughout the year

i dont understand the formula for this

The next question then asks you to calculate the value of the inventory as at the year ended 31st March 20x7

I'm also struggling to work this question out as well!


Any help would be greatly received as this question is really bugging me now :001_smile:

CeeJaySix

If there's a mark-up of 20%, then sales = 120% of cost of goods sold. So multiply sales by 100/120 to get to COGS.

You would need to know the value of the opening inventory to work out the closing inventory - it would be opening stock plus purchases less COGS. I assume that is given in the question somewhere (or a statement to the effect that there was no opening inventory).

Does that help?

Lucy_M

Hi,
I think this right...! If total sales was 66,000 and a mark up of 20% was used then divide 66,000 by 120%, as mark up is 20% on top of cost, this gives a cost price of £55,000? Cost of goods sold is opening inv + purchases - closing inventory, so, without an opening inventory I can only guess that they just want purchases minus closing inventory. Therefore 59120 - ? = 55000, so closing inventory is 4120? Really hope that's right and helps!
Lucy

Paused halfway through my reply and see now ceejaysix answered too!

Toby82

Thank you both for your help, it's very much appreciated!