Mark Up and Margins Question

Mollypod88

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!

MarkT

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:

Mollypod88

But how do you find purchases?

MarkT

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:

Mollypod88

Yes thank you for your help

Mollypod88

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?

MarkT

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:

Clarekaye

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

Clarekaye

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 :-(

Clarekaye

Got it! Sorry & Thanks Mark :-)

hague79

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!

SandyHood

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.

SandyHood

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

SandyHood

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%

SandyHood

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% £..........

SandyHood

So divide the sales by 120% and then multiply by 100% to find Cost of Sales

hague79

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.

SandyHood

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.

MarkT

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

hague79

Hi

Sorry if i didn't use the right content new to the forum. I meant Opening inventory and closing inventory.

MarkT

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:

j1994

how do i calculate sales ? theyve only given purchases ,op,and closing inventory and cogs .the margin is 40%

Jules18

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%

Jules18

Or as I should have said Open Inv + Purchases - Closing Inv = CoS . Yes I meant to put equals CoS

welshwizard

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

welshwizard

Why can't I use a table on this silly forum?

Kkadijat

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

Kkadijat

Sorry lol, I used 2 differrent questions, hope it's not confusing?

welshwizard

Maybe my blog entry will help you.