Help with Mark up / Margin!

dizzy

Hi, I have been doing a practice simulation out of my Osbourne book to which my tutor has given me the answers, I did ok for all but one of the questions on the incomplete accounts section and I do not understand the answer! :001_unsure: Please could somebody explain it to me;

Mark up = 50% therefore margin based on sales = 33 1/3% (sales £16,396, purchases = £9,075, opening stock = £62,995) in the question you are required to find the closing stock and gross profit. I do not understand where they get the 33 1/3% from? I am not provided with any other figures (the answer gives closing stock as £61,139 and cost of sales of £10,931)

Please help!!! I have been looking at this for nearly an hour and I am getting really frustrated with it!:crying:

Thank you Dizzy

lou123

Margin/Mark up

Hi Dizzy

As your sales figure is £16,396 and your mark up is 50% they are telling you that they have added 50% to the original cost to arrive at their selling price.

When you add 50% on top of something, you are in effect adding a 'third half' to the value, so when looking for the net amount you must deduct a third.

An easier example would be using £15,000 as your sales figure.

Your mark up of 50% is included so you have to find the net value for your cost of sales.
£15,000 divided by 3 x 2 = £10,000 cost of sales.

When working with the figures in your original question:
£16,396 divided by 3 x 2 = £10,931 cost of sales.

Opening stock £62,995 + purchases £9,075 - sales £10,931 = closing stock of £61,139

I hope this helps and is clear. I've not written an answer on here before so it's probably not as brief as it could be!:001_unsure:

All the best
Lou123

dizzy

Ah! Thank you, that makes perfect sense! :thumbup: I couldn't see the wood for the trees.