Mary is in business buying and selling goods on credit. The following information was available at 30 April 2011. Inventory 1 May 2010 $5 500 Inventory 30 April 2011 $7 500 Capital 30 April 2011 $75 000 Operating expenses for the year $23 500 Purchases for the year $72 000 Mark up 50% REQUIRED

Mark scheme

Marking points from the official mark scheme (May/June 2011). The mark or mark type is shown in brackets.

1. [1] Sales: Opening inventory $5 500 + Purchases $72 000 = $77 500
2. [1] Sales: Less closing inventory ($7 500) = Cost of sales $70 000
3. [1] Sales: Gross profit (50% mark up on cost means 50/100 * cost = $35 000)
4. [1of] Sales: Revenue (Cost of sales + Gross profit) = $70 000 + $35 000 = $105 000
5. [1of] Inventory turnover: Cost of sales $70 000
6. [1] Inventory turnover: Average inventory ($5 500 + $7 500) / 2 = $6 500
7. [1of] Inventory turnover: Rate = 10.8 times (Need 'times')
8. [1] Net profit: Gross profit $35 000 - Operating expenses $23 500
9. [2 or 1of] Net profit: $11 500
10. [1of] % Net profit / Revenue: ($11 500 / $105 000) x 100
11. [1of] % Net profit / Revenue: = 11% (accept 10.9%. need % label)
12. [1of] % Net profit / Capital: ($11 500 / $75 000) x 100
13. [1of] % Net profit / Capital: = 15.3%
14. [1] Businesses with high inventory turnover often have a low percentage net profit to revenue because the seller will make a small mark up (or low selling price) on each item
15. [1] and will have a high volume of sales.
16. [1] (i) Hold a 'Sale' and reduce prices by 20%. -> Increase rate of inventory turnover
17. [1] (ii) Increase the inventory by $20 000. -> Decrease rate of inventory turnover
18. [1] (iii) Raise selling prices by 10%. -> Decrease rate of inventory turnover