These are often used
when dealing with missing items in the trading section of the profit and loss
account, i.e. sales, cost of sales (or elements making up that figure) and
gross profit.
Mark-up
Mark-up is the
percentage added to the cost of a sale to calculate the selling price.
Example
If cost of sales is
£100 and the mark up on cost of sales is 50% then our selling price will be £100
+ 50% = £150.
Using a basic
proforma you can calculate any
missing item from the trading account as long as you are given your mark-up
percentage.
£
|
%
|
£
|
%
|
|
Sales
|
X
|
100 + Mark-up
|
150
|
150
|
Cost
of sales
|
X
|
100
|
100
|
100
|
Gross
profit
|
X
|
Mark-up
|
50
|
50
|
By using this proforma,
you can now work out sales, cost of sales or profit if you are given the
mark-up percentage.
Example
You are told that
Dewi made sales totalling £125,000 with a mark-up on cost of sales of 25%.
What is the cost of sales and the gross profit?
£
|
%
|
£
|
%
|
|
Sales
|
X
|
100 + Mark-up
|
125,000
|
125
|
Cost
of sales
|
X
|
100
|
100,000
|
100
|
Gross
profit
|
X
|
Mark-up
|
25,000
|
25
|
Margin
Shows in percentage
terms the amount of profit generated from sales i.e. what percentage of the
sales revenue eventually ends up as gross profit.
E.g. if sales are
£150 and the margin is 50% then the gross profit would be £150 x 50% = £75
Using a basic
proforma you can calculate any missing item from the trading account as long as
you are given your margin percentage.
E.g. if cost of sales
where £75,000 and there is a margin of 25% what would the
sales and the gross
profit be
£
|
%
|
£
|
%
|
|
Sales
|
X
|
100
|
100,000
|
100
|
Cost
of sales
|
X
|
100 - Margin
|
75,0000
|
75
|
Gross
profit
|
X
|
Margin
|
25,000
|
25
|
Notice the difference
in Sales value between this and the example of Dewi (above).
Example
Siân had sales of
£200,000 with a margin of 30%. What is the cost of sales?
£
|
%
|
£
|
%
|
|
Sales
|
X
|
100
|
200,000
|
100
|
Cost
of sales
|
X
|
100 - Margin
|
140,000
|
70
|
Gross
profit
|
X
|
Margin
|
60,000
|
30
|
Hopefully this makes things a little easier to understand. You can use this 'grid' format to help answer any margin task.
Remember, sometimes you will have to calculate profit or cost of sales before you can go on and calculate purchases or opening/closing inventory.
Example
J Jackson is a trader who marks the selling price of his goods at 25% above cost. His books give the following information at 31st July 20X4.
J Jackson is a trader who marks the selling price of his goods at 25% above cost. His books give the following information at 31st July 20X4.
Inventory at 1/8/X3 £4,936, Inventory at 31/7/X4
£6,310,
Sales for the year £30,000
Find:
a) the cost of goods sold,
Here the Sales figure and mark-up (25% above cost) is given so we can calculate the missing figures in the grid
£
|
%
|
£
|
%
|
|
Sales
|
X
|
100 + Mark-up
|
30,000
| 125 |
Cost
of sales
|
X
|
100
|
24,000
| 100 |
Gross
profit
|
X
|
Mark-up
|
6,000
| 25 |
S0, cost of goods sold is £24,000
b) value of purchases during the year, and
Here we can use an extract from the profit and loss account to help us:
Opening inventory £ 4,936
Purchases £
less closing inventory £ 6,310
Cost of sales £ 24,000
We can work backwards here: £24,000 + £6,310 - £4,936 = £25,374
Check
Opening inventory £ 4,936
Purchases £25,374
less closing inventory £ 6,310
Cost of sales £ 24,000
Sales - cost of sales
£30,000 - £24,000 = £6,000 (Which agrees with our calculation in the grid!)
