Information for a period:Sales: 1,500,000Purchases: 1,000,000Closing Inventory: 50,000Inventory turnover was 12 times and the gross profit margin was 40%. There were also returns and carriage inwards. Calculate opening inventory.

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SSC Financial and Cost Accounting P-1 QUESTION #6089

Question 1

Information for a period:

Sales: $1,500,000
Purchases: $1,000,000
Closing Inventory: $50,000

Inventory turnover was 12 times and the gross profit margin was 40%. There were also returns and carriage inwards. Calculate opening inventory.

$100,000✔️
$116,667
$128,572
$200,000

Correct Answer Explanation

1. Gross Profit = $1,500,000 $\times$ 40% = $600,000.
2. Cost of Sales (COS) = $1,500,000 - $600,000 = $900,000.
3. Average Inventory = COS / Turnover = $900,000 / 12 = $75,000.
4. Average Inv = (Opening + Closing) / 2 $\Rightarrow$ $75,000 = (Opening + $50,000) / 2.
5. Opening Inventory = $150,000 - $50,000 = $100,000.

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