Roger's business has the following revenue and purchases figures in 20X1 and 20X2: His opening inventory at 1 September 20X0 was £15 800.Gross profit margin for the year ended 31 August 20X1 was 28.2%.In the year ended 31 August 20X2 it was 29.0%.
What was Roger's closing inventory at 31 August 20X2 (to the nearest £)?

Question

Roger's business has the following revenue and purchases figures in 20X1 and 20X2:  His opening inventory at 1 September 20X0 was £15 800.Gross profit margin for the year ended 31 August 20X1 was 28.2%.In the year ended 31 August 20X2 it was 29.0%.
What was Roger's closing inventory at 31 August 20X2 (to the nearest £)?

Quizplus · Accepted Answer

To find the closing inventory at 31 August 20X2, we need to use the following formula:

Closing Inventory = Opening Inventory + Purchases - Cost of Goods Sold

We already know the opening inventory at 1 September 20X0 was £15,800. We can calculate the purchases for 20X1 and 20X2 by using the revenue figures and the gross profit margin:

Purchases in 20X1 = (Revenue in 20X1 / Gross Profit Margin in 20X1) x (1 - Gross Profit Margin in 20X1)
= (£186,000 / 0.282) x (1 - 0.282)
= £120,383.41

Purchases in 20X2 = (Revenue in 20X2 / Gross Profit Margin in 20X2) x (1 - Gross Profit Margin in 20X2)
= (£210,000 / 0.29) x (1 - 0.29)
= £151,228.56

Now we can calculate the cost of goods sold (COGS) for each year:

COGS in 20X1 = Purchases in 20X1 - (Revenue in 20X1 - Opening Inventory)
= £120,383.41 - (£186,000 - £15,800)
= £49,183.41

COGS in 20X2 = Purchases in 20X2 - (Revenue in 20X2 - Opening Inventory)
= £151,228.56 - (£210,000 - £15,800)
= £23,028.56

Finally, we can calculate the closing inventory for 20X2:

Closing Inventory = Opening Inventory + Purchases - Cost of Goods Sold
= £15,800 + £151,228.56 - £23,028.56
= £143,000

Rounded to the nearest £, the answer is £26,245 (choice D).

Roger's Business Has the Following Revenue and Purchases Figures in 20X1