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WEEEK 8
TOPIC: TURNOVER
CONTENT:
- Meaning of Turnover
- Calculation of Gross profit/Net profit
- Variations in different types of business
Sub-topic: Meaning of Turnover
Turnover of a business is the net-sales during a particular period e.g., a year. This is the value of total sales of an organization during an accounting period, i.e., sales less return inwards.
Rate/Rapidity of Turnover (ROT)
The rate or rapidity of turnover represents the number of times the value of average stock is sold at any given period. In this respect, the greater the turnover, the greater the gross profit.
Formula
To calculate the rate of turnover, the formula to be used is represented below:
ROT = Cost of goods sold/ Average Stock
Example: if cost of goods sold is N2, 000 and average sock is N500; what is the rate of turnover?
Solution:
ROT = 2000/500 = 4times
Importance of Rate of Turnover
- It helps to determine the size of the gross profit
- It helps the growth of the business
- It acts as a driving force which compels traders to adopt different measures to succeed e.g. while some may reduce prices in order to increase their turnover, others may employ sales forces by allocating more money to advertising to increase patronage.
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