O Level Accounting (7707)•7707/12/O/N/20
Explanation
Forecast sales using inventory turnover and markup on cost
Steps:
- Calculate cost of goods sold (COGS): Inventory turnover × Average inventory = 6 × 480,000
- Apply 25% markup on cost: Sales = COGS × (1 + 0.25) = 600,000
Why D is correct:
- Markup of 25% means sales equal COGS multiplied by 1.25, per standard cost-plus pricing formula, yielding $600,000 after COGS from turnover.
Why the others are wrong:
- A: $360,000 ignores markup and misapplies gross margin as 25% on sales (COGS × 0.75).
- B: $480,000 equals COGS but omits adding the 25% markup to reach sales.
- C: $576,000 uses incorrect 20% markup (COGS × 1.20) instead of 25%.
Final answer: D
Topic: Calculation and understanding of accounting ratios
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