FRA Mark up

haychie
haychie Settling In NicelyRegistered Posts: 23
What on earth am i doing?

I kind of understand the mark up so for example

sales price = cost+40% mark up on cost
= 900x 140% = £1260

But what about the next question:

What would the selling price be, excluding VAT, if the sales margin was 40%?

I really don't understand how they work it out and why? any help please? Exam Wednesday. :001_unsure:

Comments

  • peugeot
    peugeot Experienced Mentor Registered Posts: 624
    Markup and margin methods can be confusing!!

    The markup method is the example you have cited in your post, where:

    Sales price = 140%
    Profit = 40%
    Cost = 100%

    The margin method works slightly differently. The margin method looks at the gross profit margin achieved. To calculate the gross profit margin the calculation is:

    Gross profit / sales x 100 = gross profit margin (expressed as a %).

    To calculate the selling price using the margin method this is how we do it:

    Cost = 60%
    Margin = 40%
    Selling price = 100%

    Therefore:

    £900 x 100/60 = £1,500.

    To check we have done this correctly:

    Sales price = £1,500
    Cost = £900
    Gross profit = £600

    Therefore divide £600 into £1,500 x 100 and the GP margin, is 40%

    Best regards
    Steve
  • haychie
    haychie Settling In Nicely Registered Posts: 23
    Wow Thank you so much! really helped me understand :thumbup1:
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