A head office transfers goods to its dependent branch at an invoice price loaded at a mark… — JAMB UTME

A head office transfers goods to its dependent branch at an invoice price loaded at a mark-up of $25\%$ on cost. During the financial period, goods sent to the branch amounted to $\text{₦}200,000$ at invoice price, while goods returned by the branch to the head office at invoice price totaled $\text{₦}16,000$ . What is the total profit load (unrealized profit element) contained in the net goods sent to the branch?

Answer: 36800 ₦

Answer

The total profit load contained in the net goods sent to the branch is ₦36,800.

To find the unrealized profit loading on net goods sent, subtract returns (₦16,000) from total goods sent (₦200,000) to get net goods sent of ₦184,000 at invoice price. A 25% mark-up on cost corresponds to a 20% margin on invoice price (1/5th). Calculating 20% of ₦184,000 yields ₦36,800.

Step-by-Step Solution

Calculate net goods sent to the branch at invoice price

₦184,000

Returns to head office must be deducted from gross transfers to determine net goods received by the branch.

Convert mark-up on cost to margin on invoice price

20% (or 1/5)

Since invoice price is cost plus mark-up, a mark-up of 25% on cost translates to 20% on invoice price.

Calculate the profit element (loading)

₦36,800

Multiply the margin fraction (1/5) by the net invoice price (₦184,000).

Key Concept

Accounting for Dependent Branches at Selling / Invoice Price

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