Task 7 (I think)

EmilyRose

How would you work out sales revenue from the below information.

Inventory holding days- 45 days
Inventory- £252000
Gross profit margin is 20%

Work out
Sales revenue
Cos
Gross profit

I did it one way, hummed and harred and changed it at the last minute. Just wanted to know if what I did was right or wrong!

TIA

Sunflower1o2

Inventory is £252000 and inventory days is 45 - from this information we can calculate the sales figure:- 45 days out of 365 (a full year) so 252000 divided by 45 multiplied by 365 gives £2044000 sales.
We are given the gross profit margin which is a percentage of sales 20% of £2044000 = £408,800, therefore the cost of sales = £1635200 (80%).
Let me know if you got the same figures.

Cheesypeesy

Unless I'm mistaken Sunflower, the inventory holding day calculation involves COS, not sales. So the £2,044,000 figure you calculated is not the sales revenue figure but the COS.

Given that gross profit is 20%, sales revenue must be 100% and COS must be 80%. To find the sales revenue, we need to divide COS by 0.8, which gives us £2,555,000.

Finally, we find 20% of the sales revenue to get the gross profit, which is £511,000.

Sales revenue - £2,555,000
COS - £2,044,000
Gross profit - £511,000

EmilyRose

Thank you both for your responses. In the exam I first did it how sunflower explained and changed it last minute to Cheesepeasys solution. Fingers crossed it’s correct as there was a lot of other calculations based on the solution of this one.

Thanks again

Emily