Mark up question

OliverTheEighth

Wondering if anyone can help with this question, which is on FRA Dec 08 exam:


According to SSAP9, stocks should be stated at the lower of cost and net realisable value.

On 30 Sep 08, closing stock was recorded at its selling price of £19,800 excluding VAT.
The mark up on the cost of these goods is 65%.

Calculate the cost of the closing stock.

Model answer: £19,800/1.65= £12,000

As I understand it, the mark up is calculated from the cost of sales
ie. £12,000 + 65% = £19,800

However, this question is asking you to calculate the cost of sales by giving you the
selling price - £19,800. I was wondering about the formula they used (£19,800/1.65) - have not seen this given in the Osborne book - does this formula hold true to every
such question - simply add 1 to the % figure, then divide into the selling figure?
Thanks.

Rinske

Yes it is.

The cost is 100%
The mark up is 65%
So the total figure is 165%

When you work with percentages to calculate 65% you divide the figure by 100 times 65. This is the same as just saying times 0.65.
To calculate 165% that works too. You divide the base figure by 100 times 165, which is the same again of 1.65.

Hope that helps!

Rinske

OliverTheEighth

Many thanks, Rinske

Yes, £19,800/165 (to give 1%) x 100

Cost of goods = 100%

Much clearer