Written out the material becuase it was awkward to read on my computer.
Inventory Holding Period = 45 days (IHP) Average Inventory = £225,000 Gross Profit Margin = 20% Selling cost = 2% Sales Admin cost = 3.5% sales Net assets = £1837000
There are 2 steps to calculating the sales first you need to get the cost of sales which you can do from the inventory holding equation.
IHP = Inventory/Cost of sales *365 Cost of sales = Inventory/IHP *365 Cost of sales = 1,825,000
From this you can calculate the sales from the profit margin remembering that the Gross Profit = Sales - Cost of Sales. (Make sure you don't forget the *100 if working in %ages.
Answers
Inventory Holding Period = 45 days (IHP)
Average Inventory = £225,000
Gross Profit Margin = 20%
Selling cost = 2% Sales
Admin cost = 3.5% sales
Net assets = £1837000
There are 2 steps to calculating the sales first you need to get the cost of sales which you can do from the inventory holding equation.
IHP = Inventory/Cost of sales *365
Cost of sales = Inventory/IHP *365
Cost of sales = 1,825,000
From this you can calculate the sales from the profit margin remembering that the Gross Profit = Sales - Cost of Sales. (Make sure you don't forget the *100 if working in %ages.
Profit Margin = Gross Profit/Sales *100 (%)
Sales * Profit Margin = (Sales - cost of sales)*100
Sales *20/100 = Sales - 1825000
0.8 Sales = 1,825,000
Sales = 2,281,250
ACCA in progress
F4- Passed Aug 2020
F5- Planned for Dec 2020
F6- Passed Sep 2020
F7
F8
F9
Gross Profit Margin (%)= Gross Profit / Sales * 100
Combine this with
Gross Profit = Sales - Cost of Sales
Gross Profit Margin (%) = (Sales - Cost of sales) / Sales * 100
Divide both side by 100 which converts the margin to a decimal. Using the numbers from the question 20% -> 0.2
Gross Profit Margin (decimal) = (Sales - COS) / Sales
Rearrange the equation to get sales:
Sales * GPM = Sales - COS
COS + Sales * GPM = Sales
COS = Sales - Sales * GPM
Sales * (1-GPM) = COS
Sales = COS / (1-GPM)
Plug in the numbers:
Sales = 1,825,000 / (1-0.2)
= £ 2,281,250
It's all about rearranging formulea and merging equations where appropiate. You could technically cut out calculating the COS as well.
Effectively if the Gross profit margin is X% then the COS will be (100-X)% of Sales
ACCA in progress
F4- Passed Aug 2020
F5- Planned for Dec 2020
F6- Passed Sep 2020
F7
F8
F9
I really hope one like this doesn't come up on the exam.....
ACCA in progress
F4- Passed Aug 2020
F5- Planned for Dec 2020
F6- Passed Sep 2020
F7
F8
F9