Accounts help

[Moiz]

Can anyone explain to me how the answer is C?

 

[Moiz]

Any one?

 

[fahadzaidi96]

Any one?

the profit margin is 450/550. this is because 450 worth of purchases @ cost were to be sold for 500(sales actually made) + 50(closing stock at sales value which the company aimed to sell). since the purchases of 450 are valued 550 in the market, the profit is 100 on such a sale i.e profit of 100 on 550 worth of sale.. this makes 18.18 percent profit. Thus the cost of closing inventory(which currently is valued at sales value) is $50 times (1-0.1818) (1 represents
$1 worth of sale on which 0.1818 profit is made) = 40.91 cost of closing inventory. Deduct this with purchases of 450 and you will get cost of sale = 409.09.
Therefore on sale of $500,you incurred a cost of 409.9 and thus a profit of 90.91 (option C)