Question

"Helen buys and sells mobile phones. She has been trading for many years. On 1 January 20X7, her opening inventory is 3,000 mobile phones which cost £25 each. She purchased 9,000 phones in the year amounting to £250,000 and on 31 December 20X7 she has mobile phones left in inventory with a cost of £57,500. Helen has sold phones with a sales value of £525,000 in the year.

What is the gross profit for the year ended 31 December 20X7?"

Answer 1

Helen's gross profit for the year ended 31 December 20X7 is calculated as the difference between her sales revenue of £525,000 and her COGS of £267,500, which results in a gross profit of £257,500.

Step-by-step explanation:

To calculate Helen's gross profit for the year ended 31 December 20X7, we need to determine her total cost of goods sold (COGS) and subtract it from her sales revenue. The COGS is computed by adding the cost of the opening inventory to the cost of purchases during the year and then subtracting the cost of the closing inventory.

First, we calculate COGS:
Opening inventory: 3,000 phones × £25 each = £75,000
Purchases during the year: £250,000 (as provided)
Closing inventory: £57,500 (as provided)

COGS = Opening Inventory + Purchases - Closing Inventory
COGS = £75,000 + £250,000 - £57,500 = £267,500

Now, Helen's sales revenue is £525,000 (as provided). We calculate the gross profit by subtracting COGS from the sales revenue.

Gross profit = Sales Revenue - COGS
Gross profit = £525,000 - £267,500 = £257,500

Therefore, Helen's gross profit for the year ended 31 December 20X7 is £257,500.