Head office sends goods to its branch at cost plus mark-up of of 25%. A debit of ₦40,000 to the branch stock account in the head office books will indicate ...
Question 1 Report
Head office sends goods to its branch at cost plus mark-up of of 25%. A debit of ₦40,000 to the branch stock account in the head office books will indicate that the head office has sent goods with a profit of
Answer Details
If the head office sent goods to its branch at cost plus a mark-up of 25%, it means that the selling price to the branch is 125% of the cost price. To find the cost price of the goods, we need to divide the debit of ₦40,000 by 1.25, which is the same as multiplying it by 0.8 (since 1/1.25 = 0.8).
Therefore, Cost Price = ₦40,000/1.25 = ₦32,000.
The profit made by the head office on this transaction is the difference between the cost price and the selling price.
Selling Price = Cost Price + Mark-up = ₦32,000 + (25% x ₦32,000) = ₦40,000.
Profit = Selling Price - Cost Price = ₦40,000 - ₦32,000 = ₦8,000.
Therefore, the answer is ₦8,000.
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