Did my exam today and need help!

kellypreston

I got completely thrown off a question when I needed to calculate sales from the following information:
Inventory holding period
Inventory
Gross profit margin
Net assets

Can someone please explain/provide a formula I would use to calculate sales based on this?I know you can calculate cost of sales from inventory and inventory holding period but then I got completely lost.

Can someone also tell me if AAT give you follow through marks? Because I made up a figure for sales so I could answer the other questions

mergen

Think of Profit and Loss statement and how it looks. What comes first and then work your way down.
You've got Inventory Holding Period = Inventory/C of Sales x 365. Once you've got Cost of Sales, you can work your way up to Sales.

kellypreston

But how? That’s what I’m stuck on. How do you get from cost of sales back to sales? I know you have gross profit margin but that’s a percentage not a number. Sorry if I’m being stupid here

crispy

Hello,
Made up example:

Inventory Holding: 20 Days
Closing Inventory: £ 10,000
Gross Profit Margin: 20%

First work out missing pruchases figure: £ 10,000/20 Days * 365 Days = £ 182,500
Then Add Gross Margin to arrive at Sales £ 182,500 / 0.8 = £ 228,125

Hope this helps.

fournaanjez

Re-arrange inventory holding period to find COS.

Then if you know the gross profit margin is, for example, 20% you can find sales by multiplying COS by what you want by what you've got ie 100/80. This will give you a sales figure.

With regards to the follow through marks, I have no idea sorry. I should imagine if it is a human marked part of the exam that there would be, but can't give you any guarantee.

kellypreston

I see! Thanks everyone, I will now know for next time

mergen

@kellypreston sorry was rushing trying to type and miss read your post. I read it as Gross Profit and didnt see margin. What the guys above have said.