Mark Up and Margins Question

Mollypod88Mollypod88 Well-KnownPosts: 155Registered
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!

Comments

  • MarkTMarkT Trusted Regular Posts: 302Registered
    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:
  • Mollypod88Mollypod88 Well-Known Posts: 155Registered
    But how do you find purchases?
  • MarkTMarkT Trusted Regular Posts: 302Registered
    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:
  • Mollypod88Mollypod88 Well-Known Posts: 155Registered
    Yes thank you for your help :)
  • Mollypod88Mollypod88 Well-Known Posts: 155Registered
    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?
  • MarkTMarkT Trusted Regular Posts: 302Registered
    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:
  • ClarekayeClarekaye Trusted Regular Posts: 306Registered
    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 BLURRRRRRRB
  • ClarekayeClarekaye Trusted Regular Posts: 306Registered
    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 :-(
  • ClarekayeClarekaye Trusted Regular Posts: 306Registered
    Got it! Sorry & Thanks Mark :-)
  • hague79hague79 New Member Posts: 11Registered
    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!
  • SandyHoodSandyHood Font Of All Knowledge Posts: 2,034Registered, Moderator
    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 1-margin% 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.
    Sandy
    [email protected]om
    www.sandyhood.com
  • SandyHoodSandyHood Font Of All Knowledge Posts: 2,034Registered, Moderator
    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 decrease
    Sandy
    [email protected]
    www.sandyhood.com
  • SandyHoodSandyHood Font Of All Knowledge Posts: 2,034Registered, Moderator
    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%
    Sandy
    [email protected]
    www.sandyhood.com
  • SandyHoodSandyHood Font Of All Knowledge Posts: 2,034Registered, Moderator
    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 Up
    Total 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% £..........
    Sandy
    [email protected]
    www.sandyhood.com
  • SandyHoodSandyHood Font Of All Knowledge Posts: 2,034Registered, Moderator
    So divide the sales by 120% and then multiply by 100% to find Cost of Sales
    Sandy
    [email protected]
    www.sandyhood.com
  • hague79hague79 New Member Posts: 11Registered
    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.
  • SandyHoodSandyHood Font Of All Knowledge Posts: 2,034Registered, Moderator
    Dear Nicola
    Sorry 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.
    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.
    Sandy
    [email protected]
    www.sandyhood.com
  • MarkTMarkT Trusted Regular Posts: 302Registered
    SandyHood wrote: »
    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 one
  • hague79hague79 New Member Posts: 11Registered
    Hi

    Sorry if i didn't use the right content new to the forum. I meant Opening inventory and closing inventory.
  • MarkTMarkT Trusted Regular Posts: 302Registered
    hague79 wrote: »
    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:
  • j1994j1994 Posts: 106Registered
    how do i calculate sales ? theyve only given purchases ,op,and closing inventory and cogs .the margin is 40%
  • Jules18Jules18 Settling In Nicely Posts: 102Registered, Tutor
    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 Mark-up CoS = 100%
  • Jules18Jules18 Settling In Nicely Posts: 102Registered, Tutor
    Or as I should have said Open Inv + Purchases - Closing Inv = CoS . Yes I meant to put equals CoS
  • welshwizardwelshwizard Trusted Regular South WalesPosts: 465Registered
    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 Mark-up 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




  • welshwizardwelshwizard Trusted Regular South WalesPosts: 465Registered
    Why can't I use a table on this silly forum?
    KarenMustardTutor
  • KkadijatKkadijat Posts: 28Registered
    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

    27100-35% = 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 HELPS
  • KkadijatKkadijat Posts: 28Registered
    Sorry lol, I used 2 differrent questions, hope it's not confusing?
  • welshwizardwelshwizard Trusted Regular South WalesPosts: 465Registered
    Maybe my blog entry will help you.
Sign In or Register to comment.