Help with Management Accounting Decision and Control mock question

Hi

Can anyone help me understand how to get the sales figure from question 6 in the Decision and Control Level 4 mock?

Inventory holding period is 45 days
Average inventory £225,000
Gross profit margin 20%
Selling costs 2% of sales
Admin cost 3.5% of sales
Net assets £1,837,000

They want to know what the sales, cost of sales, gross profit, selling costs, admin costs and net profit are.

I've worked out cost of sales as £1,825,000.

The answer shows sales as £2,281,250 but I can't work out how they got this figure.

Thanks in advance.

Comments

  • Krisso
    Krisso AATQB, AAT Licensed Bookkeeper Posts: 122
    Cost of Sales is worked off the inventory average holding number so you would be correct in your answer of £1,825,000

    The calculation for the above figure is Inventory Value £225,000 / Average holding Period 45 x 365 Days in the year.

    The question then says gross profit is 20% to calculate the Sales figure from cost of sales you would do the following

    Calculated COS £1,825,000 / 80 x 100 which would then give you as the answer states £2,281,250. To double check this is correct if you then deduct COS £1,825,000 from the sales figure it will give you a gross profit figure of £456,250. If you divide this by your calculated sales figure of £2,281,250 and multiply it by 100 you will see you get back to 20% GPM
  • lj1994
    lj1994 Registered Posts: 2
    That's brilliant. Thank you so much for your help!
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