Table 1 shows the value of stock held by an independent bookshop at the start and end of a year. The owner is reviewing whether too much cash is tied up in ...
Question 1 Report
Table 1 shows the value of stock held by an independent bookshop at the start and end of a year. The owner is reviewing whether too much cash is tied up in unsold books, while still making sure customers can find popular titles.
| Item | Value ($) |
|---|---|
| Opening stock | 36,000 |
| Closing stock | 44,000 |
| Cost of goods sold during year | 200,000 |
(a) Identify the average stock value. [1]
(b) Show the stock turnover ratio, to one decimal place. [1]
(c) Explain one possible disadvantage if the bookshop holds too little stock. [2]
Answer Details
(a) Average stock is:
\[\frac{\$36\,000+\$44\,000}{2}=\$40\,000\]
The average stock value is $40,000. [1]
(b)
\[\text{Stock turnover}=\frac{\$200\,000}{\$40\,000}=5.0\text{ times}\]
The stock turnover ratio is 5.0 times. [1]
(c) If the bookshop holds too little stock, popular books may be unavailable when customers want them. This can cause lost sales or lead customers to buy from another business. [2]
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