Cannot understand the calculation, help please!

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oibkkfst
oibkkfst Registered Posts: 2
in Final Accounts Preparation
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?

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  • Pian32
    Pian32 Registered Posts: 474 Dedicated contributor 🦉
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    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.

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