FRA Mark up

haychie

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:

peugeot

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

Wow Thank you so much! really helped me understand :thumbup1: