Theory question 108
Business CalculationsCommerce 2 (essay)
(a) Explain the following:
(i) Turnover
(ii) Rate of turnover
(iii) Net profit
(b) The following information is taken from the balance sheet of XYZ Ltd:
Opening Stock N1,000
Purchases N10,000
Sales N15,000
Wages N1,000
Closing Stock N5,000
You are required to calculate:
(i) The cost of goods sold
(ii) The rate of turnover
(iii) The net profit
Show the model answer
(a)(i) Turnover – the total net sales of a business in a period.
(ii) Rate of turnover – the number of times the average stock is sold in a period (cost of goods sold ÷ average stock).
(iii) Net profit – gross profit less all expenses.
(b)(i) Cost of goods sold = 1,000 + 10,000 − 5,000 = N6,000.
(ii) Average stock = (1,000 + 5,000) ÷ 2 = N3,000; rate of turnover = 6,000 ÷ 3,000 = 2 times.
(iii) Gross profit = 15,000 − 6,000 = N9,000; net profit = 9,000 − wages 1,000 = N8,000.
Find gross profit first, then take off expenses (wages).