Samira is a sole trader. She provided the following information. Gross profit margin 20% Revenue $180 000 Rate of inventory turnover 5 times Trade receivables turnover 36 days Trade payables turnover 40 days

Mark scheme

Marking points from the official mark scheme. The mark or mark type is shown in brackets.

1. 22(a)(i) Gross profit = 20/100 x 180 000 (1) = 36 000 (1)
2. 22(a)(ii) Cost of sales = 180 000 – 36 000 (OF) (1) = 144 000 (1)
3. 22(a)(iii) Average Inventory = Cost of sales / Rate of inventory turnover (1) = 144 000 / 5 (OF) (1) = 28 800 (1)
4. 22(a)(iv) Closing inventory = Average Inventory x 2 (1) = 28 800 x 2 (OF) (1) = 57 600 (1)
5. 22(a)(v) Trade receivables = Revenue x 36 / 365 (1) = 180 000 x 36 / 365 (OF) (1) = 17 753.42 (1)
6. 22(a)(vi) Trade payables = Cost of sales x 40 / 365 (1) = 144 000 (OF) x 40 / 365 (1) = 15 780.82 (1)
7. 22(b) Award 1 mark for identification of each point and up to 3 further marks for development/explanation of how the advice would improve the rate of inventory turnover. Maximum of 8 marks. (4 x 2 marks)
8. • Increase sales (1)
9. - By increasing advertising/marketing (1) which will attract more customers (1) so more goods are sold more quickly (1).
10. - By reducing sales price (1) making goods more affordable (1) to attract more customers (1) so more goods are sold more quickly (1).
11. • Reduce inventory (1)
12. - By having a just-in-time system (1) so that goods are received when needed (1) thus reducing the quantity of inventory held (1).
13. - By reducing the amount of goods purchased (1) so that fewer goods are held in the warehouse (1) and reducing costs (1).
14. - By reducing variety of goods (1) so there is less choice (1) reducing the amount of inventory held (1).
15. • Reduce returns (1)
16. - By ensuring goods are of good quality (1) so less goods are returned (1) so more goods are sold (1).
17. • Introduce better security/inventory controls (1)
18. - To reduce pilferage/theft/damage (1) so more goods are available for sale (1) so more goods are sold (1).