A sole trader fixes her prices by adding 50 per cent to the cost of all goods purchased. On 31 July 20X5 a fire destroyed a considerable part of the inventory and all inventory records.
Her trading account for the year ended 31 July 20X5 included the following figures:
| $ | $ | |
| Sales | 70,314 | |
| Opening inventory at cost | 45,900 | |
| Purchases | 62,300 | |
| 108,200 | ||
| Closing inventory at cost | (51,150) | |
| (57,050) | ||
| Gross profit | 13,264 |
Using this information, what inventory loss has occurred?
Answer
Markup on Cost 50%
Markup = ( sale – cost) / cost = 50%
Sale = cost + cost x 50% = 150 % x cost
So cost = sale / 150% = $70,314 / 150% = $46,876
Loss of inventory = $57,050 – $46,876 = $10,174