AP2 - Cost of goods

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Nickynoo
Nickynoo Registered Posts: 34 Epic contributor 🐘
Morning,

Can someone clarify if to calculate the cost of goods sold is

net profit - mark up = Cost of goods?

Then purchases would be Open inventory + Cost of goods - Cl;osing Inventory?

Have my exam on monday :001_unsure:

Thanks

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  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
    Options
    Opening Inventory
    + Purchases
    - Closing Inventory
    = Cost of Goods Sold

    Sales Revenue
    -Cost of Goods Sold
    = Gross Profit

    And if you re-arrange the formula
    Sales Revenue
    -Gross Profit
    =Cost of Goods Sold

    Gross Profit...... = Profit Margin
    Sales Revenue

    Gross Profit...... = Mark up on cost
    Cost of Sales
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com
  • Nickynoo
    Nickynoo Registered Posts: 34 Epic contributor 🐘
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    Thank you, fingers crossed for Monday :)
  • Nickynoo
    Nickynoo Registered Posts: 34 Epic contributor 🐘
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    How about working out the purchases?

    On a paper received by the tutor we were given the Sales Revenue, and the Opening and Clsoing Inventory, we had to calculate the cost of goods then the purchases?
  • steve2008
    steve2008 Registered Posts: 89 Epic contributor 🐘
    Options
    Opening Inventory
    + Purchases
    - Closing Inventory
    = Cost of Goods Sold

    would rearrange to
    Purchases = Cost of Goods Sold + Closing Inventory - Opening Inventory

    Basic algebra is what you need to sort them out.

    Opening Inventory + Purchases - Closing Inventory = Cost of Goods Sold

    ---- (Add Closing Inventory to each side)
    Opening Inventory + Purchases - Closing Inventory + Closing Inventory = Cost of Goods Sold + Closing Inventory

    ---- (The Closing Inventory on the left side of the equation cancel each other out)
    Opening Inventory + Purchases = Cost of Goods Sold + Closing Inventory

    ---- ( minus Opening Inventory to each side)
    Opening Inventory + Purchases - Opening Inventory = Cost of Goods Sold + Closing Inventory - Opening Inventory

    ---- (the Opening Inventory on the left side cancel each other out)
    Purchases = Cost of Goods Sold + Closing Inventory - Opening Inventory
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