Home For AAT student members AQ 2016 Advanced Diploma in Accounting Final Accounts Preparation

Cannot understand the calculation, help please!

You have been provided with the following information.

The gross profit is £16,250
Mark-up 25% on cost
Opening inventory £5,550
Purchases £74,350



Calculate the value of sales.

The answer is 81,250. but for the life of me, cannot figure out the calculation

"Remember to break the gross profit down to 1%; if the cost of sales is based on 100%, then the value of sales has to be 125%. Have another go."

this does not help either, how can I find the cost of sales without closing inventory?

Comments

  • Pian32Pian32 MAAT Posts: 378
    Mark up is the value of the gross profit made in terms of cost of sales.

    So if you have a X% mark up then you have 2 useful bits of information:

    1) Gross Profit = X% of Cost of sales
    2) Sales = (100+X)% of Cost of sales

    So for the above question

    16,250 = 25% Cost of sales

    Cost of sales = 16250/0.25 = £65,000

    Sales = 125% * 65,000 = 1.25 *65000 = £81,250

    I hope this helps.

    AAT Level 4, MAAT
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