Baljit provided the following information for the year ended 30 April 2013. $ Inventory 1 May 2012 14841 Inventory 30 April 2013 21159 Cost of goods sold 90 000 Administration expenses 4890 Selling expenses 7485 Capital employed 1 May 2012 101 250 Mark up 25% REQUIRED

Mark scheme

Marking points from the official mark scheme (May/June 2013). The mark or mark type is shown in brackets.

1. [2] Sales (Cost of sales $90 000 + 25%) = $112 500
2. [2] Purchases $96318
3. [1] Gross profit $22500
4. [1] Administration expenses ($4890)
5. [1] Selling expenses ($7485)
6. [2] Profit for the year $10125 (2)/(1) of
7. [1] Gross profit margin: $22500 (1) of ×100 / $112500 (1) of
8. [1] Gross profit margin: 20%
9. [1] Net profit margin: $10125 (1) of ×100 / $112500 (1) of
10. [1] Net profit margin: 9%
11. [1] Rate of inventory turnover: Cost of goods sold / Average inventory = $90000 (1) / $18000 (1)
12. [1] Rate of inventory turnover: 5 times
13. [1] Rate of inventory turnover: Average inventory ×365 / Cost of goods sold = $18000 (1) × 365 / $90000 (1)
14. [1] Rate of inventory turnover: 73 days
15. [1] Return on capital employed (ROCE): Net profit x 100 / Capital = $10125 (1) of ×100 / $101250 (1)
16. [1] Return on capital employed (ROCE): 10%
17. [1] Overall profitability was lower in 2013
18. [1] Overall all the profitability ratios have fallen
19. [2] Gross profit and net profit (margin) have both fallen
20. [1] The gross profit margin has fallen in 2013
21. [1] from 25% to 20%/or by 5%
22. [1] because selling price has been decreased
23. [1] or cost of sales has increased
24. [max 3]
25. [1] The net profit margin has fallen in 2013
26. [1] from 11% to 9%/or by 2%
27. [1] because the gross profit is lower
28. [1] expenses are higher
29. [max 3]
30. [1] The return on capital employed has fallen in 2013
31. [1] from 12% to 10%/or by 2%
32. [1] because net profit is lower
33. [1] capital employed is higher/taken a long term loan
34. [max 3]
35. [1] The rate of inventory turnover has decreased in 2013
36. [1] from 8 times to 5 times/or by 3 times
37. [1] or from 45.6 days to 73 days/or by 27.4 days
38. [1] because they are selling the inventory more slowly
39. [1] closing inventory has increased
40. [max 3]
41. [max 6]
42. [2] Reduce inventory levels by reducing purchases
43. [2] Give discounts to get rid of surplus stock
44. [2] Promote sales by offering cash/trade discounts
45. [2] Sales promotions/advertising to increase sales
46. [2] Reduce selling price to sell more
47. [2] Reduce mark up on cost of sales
48. [2] Use a just-in-time stock control system
49. [2] Find cheaper suppliers/buy in bulk to reduce the cost of sales
50. [max 6]