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Difficulty: HardApplication of Mark-up and Margin in Estimating Cost of Goods Sold and Stock

Alhaji Bello operates a boutique in Kano and maintains single-entry accounting records. For the financial year ended 31st December 2025, the following details were extracted from his records:

- Opening inventory: ₦38,000₦38,000
- Purchases: ₦280,000₦280,000
- Carriage inwards: ₦14,000₦14,000
- Returns outwards: ₦12,000₦12,000
- Goods withdrawn for personal use (at cost): ₦8,000₦8,000
- Closing inventory physically counted: ₦42,000₦42,000

If Alhaji Bello sells all goods at a uniform mark-up of 25%25\% on cost, what is his total sales revenue (in ₦₦) for the year?

Answer: 337500 ₦

Answer

The total sales revenue for the year ended 31st December 2025 is ₦337,500₦337,500.
To compute total sales revenue, first determine the Cost of Goods Sold (COGS). Opening Inventory (₦38,000₦38,000) plus Net Purchases (₦280,000+₦14,000−₦12,000−₦8,000=₦274,000₦280,000 + ₦14,000 - ₦12,000 - ₦8,000 = ₦274,000) minus Closing Inventory (₦42,000₦42,000) gives a COGS of ₦270,000₦270,000. Applying the 25%25\% mark-up on cost gives a Gross Profit of ₦67,500₦67,500 (0.25×₦270,0000.25 \times ₦270,000). Adding Gross Profit to COGS gives total sales revenue of ₦337,500₦337,500.

Step-by-Step Solution

1
Calculate the net cost of purchases available for resale
Net Purchases = ₦274,000₦274,000
Carriage inwards is added to purchases as a direct cost of bringing inventory to the business, while returns outwards and owner drawings at cost must be deducted.
2
Determine the Cost of Goods Sold (COGS)
COGS = ₦270,000₦270,000
Cost of Goods Sold is calculated by adding opening inventory to net purchases and deducting closing inventory.
3
Apply the 25%25\% mark-up rate to COGS to derive Total Sales Revenue
Total Sales Revenue = ₦337,500₦337,500
Mark-up represents gross profit expressed as a percentage of cost of sales (25%25\% of ₦270,000=₦67,500₦270,000 = ₦67,500). Adding gross profit to cost of sales yields total sales revenue.

Key Concept

Application of Mark-up to Cost of Goods Sold to determine Total Sales Revenue
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Topics

Application of Mark-up and Margin in Estimating Cost of Goods Sold and Stock

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