# Assessment 1 Task 6 Decision &Control

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

• 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
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
F4- Passed Aug 2020
F5- Planned for Dec 2020
F6- Passed Sep 2020
F7
F8
F9
• Thank you, I get the COS calculation but not the rest?
• 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
• 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.....
• 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