Incomplete records - find cost of sales

lala99lala99 Posts: 10Registered
Hi
Does anyone know if it's possible to find the cost of sales figure and the sales figure if all you have is purchases and an indication that the inventory has gone down by a given amount during the year????
Help!
Thanks in advance

Answers

  • Zoynal98Zoynal98 Posts: 65AATQB
    Cost of Sales = (Opening Inventory + Purchases) - Closing Inventory

  • lala99lala99 Posts: 10Registered
    Hi thanks for your message. But no, sorry, all I have is the purchases figure. No other information. Except that inventory has gone down during the year.
  • AC88AC88 Posts: 44AAT Student
    Hi @lala99, it's just rearranging the formula. What is the question?

    So you have the movement (Opening - closing) + Purchases = Cost of sales

    Does it give you any additional info about the sales figure?
  • lala99lala99 Posts: 10Registered
    Hi thanks so much but that's the problem. I've gone over all the formulas, all the ways I can think.
    Info given was:
    Purchase price including vat
    Mark up percentage
    'Inventory reduced by x amount over the year' , no opening inventory figure provided

    Need to find:
    1 - cost of sales
    2 - Net sales

    Thanks
  • AC88AC88 Posts: 44AAT Student
    What are the figures?
  • lala99lala99 Posts: 10Registered
    Hi
    Not sure if I should give them as relates to recent exam...
  • Zoynal98Zoynal98 Posts: 65AATQB
    Let's say inventories reduced by £200 and you have purchases of £3,000.

    Make a figure up for Opening and Closing Inventories which will give you a reduction of £200.

    (500 + 3000) - 300 = £3,200 This is your cost of sales.
  • Zoynal98Zoynal98 Posts: 65AATQB
    edited May 18
    What's the mark up percentage?

    If you have this and the Cost of Sales, you should be able to find out Net Sales.

    For example: Mark up is 25%

    Cost of Sales is £3,200

    3,200 = 100%

    3,200 / 100 = £32

    32 x 125 (100% + 25%) = £4,000 This is Net Sales

    Hope this helps.
  • AC88AC88 Posts: 44AAT Student
    Yer, spoton.

    As you only had the movement it will look different but have same outcome:

    £3,000 + £200 = £3,200

    For markup, say you want 25% markup:

    £3,000 x 1.25 = £3,750
  • lala99lala99 Posts: 10Registered
    Hi guys thanks for your help
    So, in the exam, if this is all the info I am given, am I just supposed to make the other figures up???? I'm confused! :/
  • Zoynal98Zoynal98 Posts: 65AATQB
    edited May 18
    No, just used this as an example to show you how to calculate the Cost of Sales and Net Sales. :)

    Basically, if there was a reduction to Inventories you will add this to the Purchases figure and if there's an increase to Inventories you will subtract this from the Purchases figure, this will give you the cost of sales figure. Once you have the cost of sales figure you can then work out net sales using the Mark-up percentage given to you.
  • AC88AC88 Posts: 44AAT Student
    @Zoynal98 is absolutely right :)

    and realised I made error in my calculations above for markup it's:

    3,200 x 1.25 = £4,000
    Zoynal98
  • lala99lala99 Posts: 10Registered
    Ha ha got me worried there ;)

    Ok so say purchases is 58380
    Mark up is 20%
    Inventory a has gone down by 1185 over the year

    I need to find cos and net sales...

    Please can you just explain that again?
  • Zoynal98Zoynal98 Posts: 65AATQB
    Sure,

    Cost of Sales = (Opening Inventory + Purchases) - Closing Inventory

    [Reduction in inventory, add to purchases]

    £58,380 + £1,185 = £59,565

    £59,565 is the Cost of Sales

    Now work out the Net Sales using the Mark up which is 20%:

    £59,565 = 100%

    59565 / 100 = 595.65

    595.65 x 120 (100% + 20%) = £71,478

    £71,478 is the Net Sales
    AC88
  • lala99lala99 Posts: 10Registered
    Hi, I really appreciate your help... My brain is obviously a bit foggy tonight!

    I'm totally with you on calculating from cos to sales... No problems there. .

    It's just the first bit, just knowing that inventory has reduced over the year, but not knowing what it started at or finished at... ???? How does that give me my cos? I thought it was opening inventory+ purchases, less closing inventory= cos.

    Thank u
  • Zoynal98Zoynal98 Posts: 65AATQB
    edited May 19
    The movement means how much the inventory has increased/decrease over the year hence the names Opening and Closing inventory.

    As @AC88 stated:
    So you have the movement (Opening - closing) + Purchases = Cost of sales

    It's the same formula as [(Opening Inventory + Purchases) - Closing Inventory] but it has been rearranged to fit your question. (Opening Inventory - Closing Inventory) is the Movement in Inventories

    For example:

    Opening Inventory: £3,000
    Purchases: £60,000
    Closing Inventory: £2,000

    The cost of sales is £61,000

    However if you didn't have the Opening or Closing inventory and they just gave you the movement which in this case is a £1,000 reduction because at the beginning of the year the Inventory was £3,000 (Opening) and at the end of the year the Inventory was £2,000 (Closing). Because there was a reduction you will need to add the £1,000 to the purchases. This can be the other way round where the Opening inventory is less than the Closing Inventory thus giving us an increase in the movement of inventories.

    Hope this make sense.
  • lala99lala99 Posts: 10Registered
    Aha! Lightbulb moment!!!!
    Thank you so much.
    And here is the scary thing, in all my number crunching I actually hit on the right answer and didn't know it!
    So really the opening and closing inventory figures are irrelevant in a way, as the were not provided, it's just the result of that calculation that matters. Which I then add to purchases, (or deduct if it's been an increase in inventory over the year??) which then gives me cos and therefore allows me to calculate net sales and gross profit!!!! Got it
  • lala99lala99 Posts: 10Registered
    Thank you both so much for your help and patience
  • Zoynal98Zoynal98 Posts: 65AATQB
    No problem :)

    If there was a reduction to Inventories you will add this to the Purchases figure and if there's an increase to Inventories you will subtract this from the Purchases figure, this will give you the cost of sales figure.
  • lala99lala99 Posts: 10Registered
    Hi that's fabulous thank you so much
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