At the end of its most recent financial year, a firm, which sells exclusively on credit, was owed £60,000 by its debtors. The firm applies a mark-up of 25% on all goods and allows its debtors 60 days credit (based on 360 days in the firm’s financial year).
Its gross profit for the year was?
Select ONE answer:
- £72,000
- £90,000
- £122,000
- £180,000
Show your workings to arrive at your answer, and explain and justify your reasons:
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This multiple-choice question is suitable for Accounting KS5 classes.
The answer is 1
- Correct – Days credit given = (Debtors / Credit sales) * 360. Therefore 60 = (£60,000 / Credit sales) * 360. Therefore, Credit sales = £360,000. Cost + 25% = £360,000. Therefore, Cost = £288,000. Gross profit = Sales – Cost of sales = £360,000 – £288,000 = £72,000
- Not correct
- Not correct
- Not correct
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