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In consolidation questions there may be inter-company trading of stock which may lead to unrealised profit if unsold by the receiving company. The question sometimes mentions that the stock is sold at a certain mark-up percentage or a certain percentage of sales price.
How do you work out the formula for mark-up and margin?
Thanks
Don’t think it is an official method but this is how I work them out in questions.
Cost= selling price / [1+ (mark up%/100)]
Cost=[1- (margin%/100)]xselling price
If for example mark up was 25% and sales were 200 then 200/1.25= 160
If margin were 20% and sales were 200 then 0.8 x 200= 160 cost.
This is just my technique.Practice examples till you are comfortable with a way that is accurate and comfortable for you to use.
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