Jabir owns an electrical wholesale business. The following balances appeared in his books on 30 September 2021. Inventory $8000 Purchases $109000 Trade payables $11600 Revenue $160000 Trade receivables $22600 Operating expenses $35200 The inventory on 1 October 2020 was $11000. All sales and purchases were on a credit basis.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2021). The mark or mark type is shown in brackets.

1. [1] Gross profit $48000
2. [1] Profit for the year $12800 (OF)
3. [1] (48000 / 160000) * 100
4. [1] 30% (OF)
5. [1] Increase selling price / reduce trade discount to customers
6. [1] Obtain cheaper supplies / obtain higher trade discount from suppliers
7. [1] Purchase lower quality goods
8. [1] Change proportion of different types of goods sold/sell more goods with higher profit margin
9. [1] (22600 / 160000) * 365
10. [1] 52 days
11. [1] Advantage: Sales may increase
12. [1] Advantage: May attract more customers
13. [1] Advantage: Profit may increase
14. [1] Advantage: May improve relationship with customers
15. [1] Disadvantage: Delays the receipt of money
16. [1] Disadvantage: Additional working capital may be required
17. [1] Disadvantage: May be an increase in irrecoverable debts
18. [1] Disadvantage: May be an increase in administration costs
19. [1] Recommendation
20. [1] (11600 / 109000) * 365
21. [1] 39 days
22. [1] Justification: Reduction in cost of sales
23. [1] Justification: If goods can be sold the gross profit will increase
24. [1] Justification: May reduce selling price to increase sales revenue
25. [1] Justification: Could increase range of products to sell
26. [1] Justification: Need to consider if the additional goods can be sold
27. [1] Justification: Increase in quantity / value of inventory
28. [1] Justification: Increased cost of storage
29. [1] Justification: Additional working capital may be required
30. [1] Justification: Increase in amount payable to suppliers each month
31. [1] Recommendation