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In: Finance

Rafael Ron trades as Goal Company. He buys and sells professional soccer balls. For the April...

Rafael Ron trades as Goal Company. He buys and sells professional soccer balls. For the April of 2017, the following details of his business are available:

  • Opening inventory of balls (on 1st April 2017): 150 pieces at total cost of £1,200

  • Purchased in April: 180 pieces of balls at £7.5 each

  • During April he sold 190 pieces for £17 each (£3,230 in total)

  • Closing stock is valued at £7.5 per piece

  • Rent for the storehouse is paid in advance: the fee is £420 for a quarter year.

  • His assistant, Amy, receives £200 a month; it is always paid on the second workday of

    the following month.

  • Postage costs were £1500 in total for the whole year.

  • On 10th of May the Goal Company received the £800 invoice of the firm’s marketing

    advisor in connection with services provided in April.

  • Show your calculations and answer the following questions

  • Prepare an Income Statement for Rafael Ron’s business for the month of April 2017.  

  • Please create/give two hypothetical business transaction that can have effect on the profit of the company (try to match them to the profile of the company). Explain how the transactions will affect the revenues and expenses

Solutions

Expert Solution

Goal Company
Income statement for the month ended April ,2017
Sales revenue 3230
Less: Cost of goods sold 1500
Gross Profit 1730
Expenses:
Rent [420/3] 140
Salary 200
Postage [1500/12] 125
Marketing 800
Total expenses 1265
Net Income 465

Workings:

Opening inventory of balls 150 1200
Purchased [ 180*7.5] 180 1350
Total units available for sale 330 2550
Less: Units sold [ 2550-1050] 190 1500
Closing stock [140*7.5] 140 1050

(ii)

The following can have effect of the profit of the company:

(i) Packing charges of the soccer balls in custom made bags can increase the profit when the company charges additional money per unit for the packing. This can increase the revenues as well as profits if the firm is able to negotiate costs as well.

(ii) Maintenance of closing stock i.e. storage, insurance and labor costs can increase the expenses and reduce the profits.


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