Home For AAT student members AQ 2016 Professional Diploma in Accounting Management Accounting: Decisions and Control

Assessment 1 Task 6 Decision &Control

Can anyone help with how to work out the sales figure from this question please?

Answers

  • Pian32Pian32 Registered Posts: 260
    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.


    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



    AAT Level 4, MAAT
    ACCA in progress
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  • EMMAHUTCHESONEMMAHUTCHESON Registered Posts: 4
    Thank you, I get the COS calculation but not the rest?
  • Pian32Pian32 Registered Posts: 260
    No problem I'll go through it in more detail.

    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
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Planned for Dec 2020
    F6- Passed Sep 2020
    F7
    F8
    F9
  • MOSBMOSB Registered Posts: 14
    Pian32 said:

    No problem I'll go through it in more detail.

    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

    thankyou, that's a big help.

    I really hope one like this doesn't come up on the exam.....
  • Pian32Pian32 Registered Posts: 260
    It's fairly likely I think. GPM is a very common ratio to need to use. Where you get the figures from could vary though.
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Planned for Dec 2020
    F6- Passed Sep 2020
    F7
    F8
    F9
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