Mark Up and Margins Question
Mollypod88
Registered Posts: 155 🎆 🐘 🎆
Hi All,
STILL struggling with mark up's and margins :confused1: Can someone please explain the following answer:
You need to calculate some figures for a business for the month of March. The SDB is March shows sales of £32520 including VAT @ 20%
(a) Calcuate the sales net of VAT
27100
The gross sales margin is 35%
(b)Calculate the COGS
17615
You also have the opening and closing inventory figures:
Opening: £14,500
Closing: £ 15,900
(c) Calculate the purchases
19015
Please can anybody explain how to get answers B and C?
Thank you!
STILL struggling with mark up's and margins :confused1: Can someone please explain the following answer:
You need to calculate some figures for a business for the month of March. The SDB is March shows sales of £32520 including VAT @ 20%
(a) Calcuate the sales net of VAT
27100
The gross sales margin is 35%
(b)Calculate the COGS
17615
You also have the opening and closing inventory figures:
Opening: £14,500
Closing: £ 15,900
(c) Calculate the purchases
19015
Please can anybody explain how to get answers B and C?
Thank you!
0
Comments

The Margin is 35 % and as the total sales are always 100% you must multiply the 100% Figure ie £27100 by .65
100  35 = 65 so .65... this will give you the figure 17615.
COGS is always the formula of opening stock + purchases  closing stock
£14500 + £19015  £15900 = £17615
Hope that helps :001_smile:0 
But how do you find purchases?0

The purchases are worked out using the formula Cost of goods sold equals opening stock + purchases  closing stock.
It can help if you therefore work it out in reverse:
Closing goods + Cost of goods sold  opening stock = purchases
£15900 + £17615  £14500 = £19015
Does this make sense now? :001_smile:0 
Yes thank you for your help0

Sorry one more!
Total sales: 66000
Total purchases: 59120
Mark up of 20% used
Calcuate the COGS for the year
Answer 55000
How do you get to 55000?0 
Mollypod88 wrote: »Sorry one more!
Total sales: 66000
Total purchases: 59120
Mark up of 20% used
Calcuate the COGS for the year
Answer 55000
How do you get to 55000?
It's a typical AAT smoke and mirrors question.
The purchases value here is not needed as you have the relevant information to give you the cogs  the sale value and the mark up.
As a mark up is on top of the 100% cogs your end figure is simply divided by 1.2
Does this make sense? :001_smile:0 
I am really struggling with margin/mark ups too :( every question I read and even the answers & workings on the aat greenlight I look at and see BLURRRRRRRB0

Sorry to hijack your thread can anyone help me with this one?
Total sales are £66000
Total purchases are £59120
Calculate the value of the cost of goods sold
AND calculate value of inventory
I tried it my way & got it wrong, tried to look at my books and just cannot work out how they got the answer :(0 
Got it! Sorry & Thanks Mark :)0

Hi all
Sorry to come in on the thread but i dont know how to make a new one
Really strugging to find the missing figures iv failed prep2 exam twice now!! i can't fail again so please can someone HELP!!
Sales Revenue 600,000
Margin 35%
Purchases 40,000
Had to find O/V
C/V
and gross profit?
Thanks all:glare: got to get this!0 
The first thing anyone needs is the confidence to know how much you can calculate from a set of information.
Take this example:
Sales Revenue 600,000
Margin 35%
Purchases 40,000
Had to find O/V
C/V
and gross profit?
We can instantly find the gross profit, and because cost of sales has to be 1margin% we can find that too
But we only have a purchases figure, so all we can find is the change in the stock, not an opening figure or a closing figure.0 
Here goes:
Gross Profit (35% x £600,000) = £210,000
Cost of Sales 65% x £600,000 = £390,000
And then change in stock value: Purchases  Cost of sales £40,000  £390,000 = £350,000 decrease0 
So imagine that the opening stock was £500,000 then the account would look like this
Trading Account
....................................................................................£
Sales Revenue............................................................. 600,000
Cost of Sales
Opening Inventory ............................................500,000
Purchases........................................................40,000
....................................................................540,000
Closing Inventory...............................................150,000
..................................................................................390,000
Gross Profit ..................................................................210,000
Margin 35%0 
You must master the difference between mark up and margin at this level. It becomes a vital building block when you work out unrealised profits at higher levels.
Look at this example A Mark UpTotal sales: 66000
Total purchases: 59120
Mark up of 20% used
Calcuate the COGS for the year
So Sales represents Cost of sales + 20%
Sales 120% £66,000
CoGs 100% £.........
Mk up 20% £..........0 
So divide the sales by 120% and then multiply by 100% to find Cost of Sales0

Hi Sandy
Thanks for the reply this really helps! i got this question on my exam two weeks ago thats how long its taking to go in. i have resit on friday
:thumbup1:
Nat.0 
Dear NicolaSorry to ask questions, but does that mean when they say work out the O/V & C/V they just want one answer? i think understanding what there actually asking is the hardest part.
Please can you confirm that these abbreviations mean the carrying value of inventory O/V being the opening value at the beginning of the period, C/V being the closing value at the end?
I would expect you to be able to find these, but you do need enough information to do so.
In my example £500,000 was my guess for the opening inventory. If instead the question had provided either the figure or a way to work it out, then the question can quite rightly expect you to find the closing inventory.0 
Dear Nicola
I am not familiar with either O/V or C/V in this context
Please can you confirm that these abbreviations mean the carrying value of inventory O/V being the opening value at the beginning of the period, C/V being the closing value at the end?
I would expect you to be able to find these, but you do need enough information to do so.
In my example £500,000 was my guess for the opening inventory. If instead the question had provided either the figure or a way to work it out, then the question can quite rightly expect you to find the closing inventory.
Glad to see that I wasn't the only one scratching their head with this one0 
Hi
Sorry if i didn't use the right content new to the forum. I meant Opening inventory and closing inventory.0 
Hi
Sorry if i didn't use the right content new to the forum. I meant Opening inventory and closing inventory.
Not a problem, can you let us know if the question only gave the sales figure and the mark up / margin % and the purchases amount?
Reason being is that without either the opening or closing value of stock, its an impossible task to one without the other :001_smile:0 
how do i calculate sales ? theyve only given purchases ,op,and closing inventory and cogs .the margin is 40%0

Remember the formula
Open Inv + Purchases  Closing inv  CoS and Sales  CoS = GP or margin
Therefore if Sales = 100%, Margin = 40% CoS must be 60%
So if you are given CoS as eg£80 then /60 * 100 and Sales = 133.33 (and lots of other 3's)
With margin Sales = 100% but with Markup CoS = 100%0 
Or as I should have said Open Inv + Purchases  Closing Inv = CoS . Yes I meant to put equals CoS0

Maybe this will help. Adopt a tabluar layout to help you calculate your answers:
Margin (Sales is ALWAYS 100% in the Margin model) % £
Sales100% 133.33
Cost of good sold 60% 80.00
Profit 40% 53.33
Mark up (Cost of goods sold is ALWAYS 100% in the Markup model) % £
Sales 140% 112.00
Cost of good sold 100% 80.00
Profit 40% 32.00
Provided you are given one £ amount (e.g. sales) and one % amounts and one other figure (e.g. margin of 40%) you can work out all the other figures
0 

cost of goods sold ADD closing inventory LESS opening inventory = Purchases
SALES NET OF VAT is calculated as follows; (where VAT is already included)
SALES multiply by 20 divided by 120(ie 100%+20%) EQUALS SALES NET OF VAT
32520X20/120 = 5420 (VAT that was included)
32520  5420 = 27100( SALES NET OF VAT)
To calculate Cost of goods sold you need to find Gross Profit first. so,
66000 x 20 divided by 120 = 1100 GP
66000  1100 = 55000 cost of goods sold OR 66000/120% = 55000
BUT margin is a little bit easier to markup, you just need to deduct the margin % from the sales and you get COGS
2710035% = 17615 cost of good sold OR
First calculcate the GP and deduct it from sales
27100 x35% = 9485 GP
Sales LESS GP = COGS SO 27100  9485 = 17615
SALES NET OF VAT is calculated as follows; (where VAT is already included)
SALES multiply by 20 divided by 120(ie 100%+20%) EQUALS SALES NET OF VAT
32520X20/120 = 5420 (VAT that was included)
32520  5420 = 27100( SALES NET OF VAT)
HOPE THIS HELPS0 
Sorry lol, I used 2 differrent questions, hope it's not confusing?
0 
Maybe my blog entry will help you.0
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