I. A retailer when fixing his selling price adds one-quarter to the cost of the article II. The expenses of the retailer is 10% of his sales III. The total ...

I. A retailer when fixing his selling price adds one-quarter to the cost of the article

II. The expenses of the retailer is 10% of his sales

III. The total sales is ₦23,000

IV. he turned over his stock five times in the year.

Compute the average amount of stock in hand at cost price

Answer Details

To compute the average amount of stock in hand at cost price, we need to use the inventory turnover ratio formula: Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory We can calculate the cost of goods sold using the given information: Cost of Goods Sold = Total Sales - Gross Profit To calculate the gross profit, we need to know the cost price of the goods sold. From statement I, we know that the selling price is 1.25 times the cost price. Therefore, the cost price is 4/5 of the selling price. Let x be the cost price of an item. Then, the selling price is 1.25x. The gross profit per item is: Gross Profit = Selling Price - Cost Price = 1.25x - x = 0.25x The expenses of the retailer are 10% of his sales, so his net profit per item is: Net Profit = Gross Profit - Expenses = 0.25x - 0.1(1.25x) = 0.125x The turnover rate is 5 times, which means the cost of goods sold is 5 times the average inventory. Cost of Goods Sold = 5 * Average Inventory * x Total Sales = Cost of Goods Sold + Gross Profit + Expenses 23,000 = 5 * Average Inventory * x + 0.25x * 5 * Average Inventory + 0.1 * 23,000 23,000 = 5x * Average Inventory * (1 + 0.25) + 0.1 * 23,000 23,000 = 6.25x * Average Inventory Average Inventory = 23,000 / (6.25x) Substituting the value of cost of goods sold, we get: Average Inventory = 5 * Average Inventory * x / (6.25x) Simplifying, we get: Average Inventory = 4 * Total Sales / 25 Average Inventory = ₦3,680 Therefore, the average amount of stock in hand at cost price is ₦3,680. The answer is (C) ₦3,680.