Help with Management Accounting Decision and Control mock question

lj1994

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.

Krisso

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

That's brilliant. Thank you so much for your help!