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Gross profit calculation

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Mary is a student and also operates a part time business called Jano Enterprises. She sells imported marker pens to various retail office and stationery supply shops. Business commenced in May 2012.Mary conducts all of the business’ operations (she works alone and has no employees).

Mary purchases pens for 60c each and sells them for $2.50 each. These amounts have not changed since Mary started operations.

At 1st July 2012 an amount of $1,500 appears as inventory in the trial balance.

During the year e...

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Question Preview:

Mary is a student and also operates a part time business called Jano Enterprises. She sells imported marker pens to various retail office and stationery supply shops. Business commenced in May 2012.Mary conducts all of the business’ operations (she works alone and has no employees).

Mary purchases pens for 60c each and sells them for $2.50 each. These amounts have not changed since Mary started operations.

At 1st July 2012 an amount of $1,500 appears as inventory in the trial balance.

During the year ended 30thJune 2013, Mary made the following unitpurchases and sales.

 

Date

Purchases

Sales

 

@60c ea

@$2.50 ea

July 11

 

1,000

Aug 3

 

600

Sept 12

2,000

 

Sept 30

 

1,300

Dec 2

1,500

 

Dec 6

 

400

Feb 3

 

700

Mar 22

1,500

 

April 19

 

2,300

May 26

 

800

TOTAL

5,000

7,100

 

 

On 30thJune 2013(the end of the accounting period), Mary counted 370 pens remaining on hand.

 

Required:

  1. Calculate the Gross Profit for the year ended 30th June 2013 under both the (i) perpetual and (ii)periodic methods of inventory recording by providing a correctly formatted extract (up to gross profit only) from Jano Enterprises income statement.You must also provide explanations and calculations for each amount shown on the statement extracts. Present this information below your statement extract. Statements provided without calculations and explanations will not receive marks.

(HINT: Since you are being asked to calculate under both methods in this question, you have been given complete data in regard to inventory flow. Not all of this data is needed for each method, therefore ensure that you only use the data that you need for each method).

 

b) Of the two methods used in 1. Above, which method (if any):

  • Provides the higher Gross Profit figure?
  • Provides the most information for control purposes, and how?
  • Considering the circumstances, which inventory method would be the most appropriate for Mary’s business? Explain why.

Mary is a student and also operates a part time business called Jano Enterprises. She sells imported marker pens to various retail office and stationery supply shops. Business commenced in May 2012.Mary conducts all of the business’ operations (she works alone and has no employees).

Mary purchases pens for 60c each and sells them for $2.50 each. These amounts have not changed since Mary started operations.

At 1st July 2012 an amount of $1,500 appears as inventory in the trial balance.

During the year ended 30thJune 2013, Mary made the following unitpurchases and sales.

 

Date

Purchases

Sales

 

@60c ea

@$2.50 ea

July 11

 

1,000

Aug 3

 

600

Sept 12

2,000

 

Sept 30

 

1,300

Dec 2

1,500

 

Dec 6

 

400

Feb 3

 

700

Mar 22

1,500

 

April 19

 

2,300

May 26

 

800

TOTAL

5,000

7,100

 

 

On 30thJune 2013(the end of the accounting period), Mary counted 370 pens remaining on hand.

 

Required:

  1. Calculate the Gross Profit for the year ended 30th June 2013 under both the (i) perpetual and (ii)periodic methods of inventory recording by providing a correctly formatted extract (up to gross profit only) from Jano Enterprises income statement.You must also provide explanations and calculations for each amount shown on the statement extracts. Present this information below your statement extract. Statements provided without calculations and explanations will not receive marks.

(HINT: Since you are being asked to calculate under both methods in this question, you have been given complete data in regard to inventory flow. Not all of this data is needed for each method, therefore ensure that you only use the data that you need for each method).

 

b) Of the two methods used in 1. Above, which method (if any):

  • Provides the higher Gross Profit figure?
  • Provides the most information for control purposes, and how?
  • Considering the circumstances, which inventory method would be the most appropriate for Mary’s business? Explain why.

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Solution preview

Mary is a student and also operates a part time business called Jano Enterprises. She sells imported marker pens to various retail office and stationery supply shops. Business commenced in May 2012.Mary conducts all of the business’ operations (she works alone and has no employees).

Mary purchases pens for 60c each and sells them for $2.50 each. These amounts have not changed since Mary started operations.

At 1st July 2012 an amount of $1,500 appears as inventory in the trial balance.

During the year ended 30thJune 2013, Mary made the following unitpurchases and sales.

 

Date

Purchases

Sales

 

@60c ea

@$2.50 ea

July 11

 

1,000

Aug 3

 

600

Sept 12

2,000

 

Sept 30

 

1,300

Dec 2

1,500

 

Dec 6

 

400

Feb 3

 

700

Mar 22

1,500

 

April 19

 

2,300

May 26

 

800

TOTAL

5,000

7,100

 

 

On 30thJune 2013(the end of the accounting period), Mary counted 370 pens remaining on hand.

 

Required:

  1. Calculate the Gross Profit for the year ended 30th June 2013 under both the (i) perpetual and (ii)periodic methods of inventory recording by providing a correctly formatted extract (up to gross profit only) from Jano Enterprises income statement.You must also provide explanations and calculations for each amount shown on the statement extracts. Present this information below your statement extract. Statements provided without calculations and explanations will not receive marks.

(HINT: Since you are being asked to calculate under both methods in this question, you have been given complete data in regard to inventory flow. Not all of this data is needed for each method, therefore ensure that you only use the data that you need for each method).

 

b) Of the two methods used in 1. Above, which method (if any):

  • Provides the higher Gross Profit figure?
  • Provides the most information for control purposes, and how?
  • Considering the circumstances, which inventory method would be the most appropriate for Mary’s business? Explain why.

 

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