Chief Ade keeps incomplete accounting records for his retail store. For the financial year… — JAMB UTME

Chief Ade keeps incomplete accounting records for his retail store. For the financial year ended 31st December 2025, his opening inventory was $\text{₦}15,000$ and total purchases amounted to $\text{₦}85,000$ . Total sales revenue recorded for the period was $\text{₦}120,000$ . If he maintains a uniform mark-up of $25\%$ on cost, what is the estimated value of his closing inventory in Naira?

Answer: 4000 ₦

Answer

The estimated value of the closing inventory is ₦4,000.

The correct closing inventory figure is ₦4,000. With a mark-up of 25% on cost, the profit margin is 20% on sales revenue. Gross profit is therefore 20% of ₦120,000 = ₦24,000, leaving Cost of Goods Sold at ₦96,000. Deducting ₦96,000 from total goods available for sale (₦15,000 opening stock + ₦85,000 purchases = ₦100,000) leaves ₦4,000 as closing inventory.

Step-by-Step Solution

Convert the given mark-up on cost into profit margin on sales revenue.

Margin = 20% (or 1/5) on sales revenue.

Mark-up relates gross profit to cost of sales, whereas margin relates gross profit to sales revenue. Since sales revenue is known, margin must be used.

Calculate the Cost of Goods Sold (COGS).

COGS = ₦96,000.

COGS is calculated either as Sales Revenue minus Gross Profit (₦120,000 - ₦24,000) or by dividing Sales Revenue by (1 + Mark-up).

Calculate total Goods Available for Sale.

Goods Available for Sale = ₦100,000.

Goods available for sale is the sum of opening stock (₦15,000) and total purchases during the year (₦85,000).

Subtract Cost of Goods Sold from total Goods Available for Sale to find Closing Stock.

Closing Stock = ₦4,000.

Closing stock is the remaining portion of inventory available during the period that was not sold.

Key Concept

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

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