CIMA BA3 · Chapter 11 · Question 2 of 12
A fire destroyed most of a business's inventory. Sales up to the date of the fire were $168,000, opening inventory was $21,000 and purchases were $125,000. Goods are sold at a mark-up of 40% on cost. Inventory that survived the fire was valued at $9,000. What was the cost of the inventory destroyed?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $17,000
Explanation
With a mark-up of 40% on cost, cost of sales = $168,000 x 100/140 = $120,000. Inventory that should have been held = $21,000 + $125,000 - $120,000 = $26,000. Inventory destroyed = $26,000 - $9,000 surviving = $17,000.
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