Thought I understood Margins

jewels.p

Still doing the FRA June 07 Exam and attempted Task 2.7 on Margins and Markups I managed to calculate the Mark Up OK but got the Margin completely wrong!:crying:

Cost Price = £900

It asks what the Selling Price would be if the Sales Margin was 40%. Reading the correct answer from the website I just dont understand this. :confused1:

The ones I have done in the past have given you the Sales Figure to calculate the Margin. Can anyone tell me an easy way to calculate Margins?

Everything I am revising just now I am getting the wrong answers. Nightmare!

Esme

For a five percent margin, divide the cost price by 0.95.
For a ten percent margin, divide the cost price by 0.9.
For a fifteen percent margin, divide the cost price by 0.85.
For a twenty percent margin, divide the cost price by 0.8.
For a twenty-five percent margin, divide the cost price by 0.75.
For a thirty percent margin, divide the cost price by 0.7.

See the pattern?


so... you would have done 900 / .6 = 1,500

crispy

Hello,

The way I remembered was: -

Margin - Sales will represent 100%
Mark-up - Cost of Sales will represent 100%

So using in in your question,

Selling Price = 100% Margin = 40% so COS = 60%

£ 900 / 60 * 100 = £ 1,500 Selling Price

For Mark-up, if you know that COS = £ 900 and marked up by 40% then,

£ 900 / 100 * 140 = £ 1,260 Selling Price

any2002uk

Whenever the word said
Sale Margin = 40% always think it as GP. then find out the COS % which is 60%
Is that right method?

mally

For margin:
Cost of sales 60%
Gross profit 40%
Selling price 100%

Mark-up:
Cost of sales 100%
Gross profit 40%
Selling price 140%

I hope that helps!

crispy

Be careful, the above message for calculating mark-ups is incorrect.

Eg.
Sales 140
COS 100
GP 40

In this the Gross Profit Margin is not 40% it is actually 28.6 %

40/140 * 100 = 28.6

Just practice these questions with your own best method and after a while they shouldn't be any problem.

Bookworm55

Be careful, the above message for calculating mark-ups is incorrect.

No, that's 40% markup. They've just labelled it as gross profit, which is what's wrong, percentages don't work like that.

This is how it should have looked:

40% Margin
Cost of sales 60%
Gross profit 40%
Selling price 100% (which is cost divided by 100%-40%=60%)

40% Mark-up
Cost of sales 100%
Markup 40%
Selling price 140% (which is cost multiplied by 100%+40%=140%)

Markups are easier; to get a selling price including n% markup, multiply the cost by 100%+n%.
Margins are slightly trickier; to end up with a margin of n% on cost, the selling price needs to be divided by (100%-n%) of cost.