PROBLEM: Measuring Income for Performance Assessment

Question

ABC Co. is selling books. A unit of book costs P16.50. On 2011, ABC has sold 2500 books. Its beginning inventory and ending inventory is 125,000 and 120,000. 30% of the units sold price is P25.00. Then the 70% has a gross profit of 57,750. How much is the net income for the year

Answer 1

Sales of 30 percent

 

Sales revenue . . .750 x P25 = P18,750

Cost of goods sold  750 x $16.50 = 12,375

Gross margin  . . . .. = 6,375

 

Sales of 70%

 

Sales revenue .. 1,750 X ? = . . . . .86,675

Cost of goods sold  1,750 + 16.50 = 28,875

Gross profit  . . . . . . . . . . . . . . . .   57,750

 

Therefore Sales revenue is 57,750 + 28,875 = 86,675, which would mean that the books were sold at49.50 each (86,675/1,750)

 

Now you can calculate total gross margin, but it is not possible to calculate income because you provide no information about operating costs.

 

The change in inventory means that the company bought 20,000 more books which it did not yet sell.