Reference no: EM131537797

Question: Two friends, Guppy and Jobling, are engaged in preliminary discussions with a view to setting up in business as retailers. It is agreed that Net Profits and Losses are to be shared between them in the ratio of two-thirds to Guppy and one-third to Jobling, and they further estimate that:

1. The net profit for the first year will be sufficient for Jobling to get £500 as his share of it.

2. Rent, assistants wages, and other expenses will amount to £1,800 for the first year.

3. The rate of Gross Profit will be 20 per cent of the sales.

4. Stock at the end of the first year will be £1,500.

You are asked to show (giving your calculations)

(a) The value of sales necessary to produce the required net profit.

(b) The amount of purchases for the year.