A
l-Madina Garments is a large retail store of readymade garments owned by Mr Abdul Qadeer Baig. Mr Baig sells garments of different well-known brands. His regular sales are Rs. 1,000,000 (approx.) every month. However, during the month of Ramazan, i.e. before Eid-ul-fitr, his activities increase tremendously. In fact, planning for Eid season starts much earlier. The planning process involves sales forecast of different items keeping in view the season and latest fashion trends. Based on the sales forecast, available stocks and resources purchase orders are placed with different suppliers. Placing large orders can get bulk discounts, which results in savings in price. Most of the purchases are made on credit payable within 60 days. However, if payments are made within 15 days a cash discount of 2% is available. Some of the garments are damaged or not according to the specifications. They are returned to the manufacturer. The calculation of profit or loss involves determining the cost of stock at the beginning and as well as at the end of the year.
Point to Think
How does the business of Mr Baig differ from that of a service organization like Khan Autos?
Al-Madina Garments purchases readymade garments and without making any alteration resells them. Khan Autos does not purchase items for resale; any items purchased are for use in repairing the automobiles. Thus, in calculating the profit or loss there are expenses to be matched with revenues. In case of trading organizations the major expense is cost of goods sold.
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