ExpertEasy2 marksMultiple Choice
ACCA · Question 23 · Interpretation of Financial Statements
Section A
A company has an opening inventory of $40,000, purchases of $250,000, and closing inventory of $50,000. Sales revenue is $300,000. What is the company's gross profit margin?
Section A
A company has an opening inventory of $40,000, purchases of $250,000, and closing inventory of $50,000. Sales revenue is $300,000. What is the company's gross profit margin?
Answer options:
A.
25%
B.
20%
C.
16.7%
D.
80%
How to approach this question
1. Calculate Cost of Sales (Opening Inventory + Purchases - Closing Inventory). 2. Calculate Gross Profit (Revenue - Cost of Sales). 3. Calculate Margin (Gross Profit / Revenue * 100).
Full Answer
B.20%✓ Correct
Cost of Sales = Opening Inventory ($40,000) + Purchases ($250,000) - Closing Inventory ($50,000) = $240,000. Gross Profit = Revenue ($300,000) - Cost of Sales ($240,000) = $60,000. Gross Profit Margin = ($60,000 / $300,000) * 100 = 20%.
Common mistakes
Calculating mark-up (GP / COS) instead of margin (GP / Revenue).
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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