Turnover SS2 Commerce Lesson Note

This refers to the total net sales during a period.  The turnover is variously referred to as the stock-turn, sales turnover or stock-turnover.

THE RATE OF TURNOVER (or Rate of Stock  turn)

This refers to the number of times the average stock is sold during a given period, usually a year.

It is calculated by dwindling the cost of goods sold by average stock.  This means that to find the rate of turnover first, the cost of goods sold must be calculated thus:

COST OF GOODS SOLD     N

Opening Stock                   5,000

Add purchases                  35,000

                                             40,000

less: Closing stock             8,000

COST OF GOODS SOLD     32,000

OR

COST OF GOODS SOLD:         N

Sales                                        50,000

Less: Gross profit                 18,000

                                                32,000

Secondly, the average stock must be calculated thus:

1. AVERAGE STOCK =

Opening Stock + Closing Stock / 2

= 5000 + 8000  =  13000  =  N 6,500

Finally, find the rate of turnover  thus:

1. Rate of Turnover   

=  Cost of goods sold/ Average Stock

= 32,000/ 6,500

FACTORS AFFECTING THE RATE OF TURNOVER OF A BUSINESS

The number of times a trader buys goods and resells them determines the size of his gross profit.  In other words, a trader’s gross profit can be increased by boosting his rate of turnover.  The various measures to be applied to increase the rate of turnover of a business can be inferred by considering the following factors which affect the rate of turnover.

1. Nature of the product.
2. Advertisement and Sales Promotion
3. Location of the business.
4. Goodwill or reputation of the seller
5. Prices
6. Wide variety of products offered for sale
7. Reliability and frequency of supply
8. Credit facilities.
9. Application of modern sales techniques e.g. self services that encourage impulse buying.
10. Number of sales outlets or branches of the business.

ASSIGNMENT 

1. Distinguish between turnover and rate of turnover.
2. If the cost of goods sold is N4000 and the stock is turned over five times yielding a profit of 10% on sale, calculate the:

(a) average stock

(b) gross profit

(c) turnover