Please help, so confused!!

galaxy
galaxy Registered Posts: 21 New contributor 🐸
in AAT Level 3 (Level 6 in Scotland)
I'm looking through the Osborne Book for FRA and I'm working on question 13.2 on the incomplete records chapter. The question is :-

Sales for the year are £100,000
Gross profit margin is 25%
Opening Stock is £10,000
Closing Stock is £12,000

What are the purchases for the year?

I got the answer £73,000 but the answer as per the text book is £77,000??

I've rang my tutor who tried explaining it to me but I just didn't understand and he said it was a case of trial and error???

Please help anyone!!

Comments

  • mrspnut
    mrspnut Registered Posts: 70 Regular contributor ⭐
    Sales revenue is £100,000 but there is a GPM of 25% so the real cost is £75,000

    Closing stock is £12,000.
    12,000 + 75,000 = 87,000 less opening stock = £77,000.

    I think of it as the equation on the P+L account.

    Sales - opening stock - purchases = closing stock and just juggle it about to find what I want.
  • galaxy
    galaxy Registered Posts: 21 New contributor 🐸
    Thank you so much!

    All makes sense now :)
  • twinmeister
    twinmeister Registered Posts: 122 Dedicated contributor 🦉
    Sales 100,000 - Opening stock 10,000 + Purchases - closing stock 12,000= cost of sales 75,000

    Purchases therefore = 27,000

    I think the answer in the book is wrong?
  • mrspnut
    mrspnut Registered Posts: 70 Regular contributor ⭐
    twinmeister wrote: »
    Sales 100,000 - Opening stock 10,000 + Purchases - closing stock 12,000= cost of sales 75,000

    Purchases therefore = 27,000

    I think the answer in the book is wrong?


    Your answer is wrong, you have done the addition and subtraction wrongly. You also needed brackets in your equation because it's really confusing otherwise.
  • mikes
    mikes Registered Posts: 254 Dedicated contributor 🦉
    No, the book is right.

    The best way to do this, is to write out a rough P&L, and enter in the figures that you know.

    The gross profit is 25% of the total sales ie £25,000. You then deduct this from the sales figure to give you a cost of sales of £75,000.

    You then use this figure and reverse the stock calculations, ie add closing stock of £12,000 and deduct opening stock £10,000, this gives you the missing purchases figure of £77,000.

    You can check this is correct, by doing the normal calcluations of all the now available figures.
  • Vidya_r
    Vidya_r Registered, Tutor Posts: 21 New contributor 🐸
    The sales margin(profit) is 25% of 100,000 = 25,000

    Now cost of sales + profit = selling price

    So cost of sales = selling price - profit = 100,000 - 25,000 = 75,000

    Cost of sales = opening stock + purchases - closing stock

    Hence 75,000 = 10,000 + purchases - 12000

    75,000 + 2,000 = purchases

    Purchases = 77,000

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