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Bob is a sole trader.He has calculated a cost of sales figure for the year,which is $342,000.Bob received a payment of $8,030 into the business bank account for goods sold on a special deal to harry and this amount has been included within sales.The figure of $8,030 was calculated by adding a markup of 10% to the cost of the goods.His gross profit percentage on all other goods sold was 20% of sales.
What is the total figure of sales for the year?
A)$401,640
B)$402,370
C)$418,375
D)$426,405
The correct answer is D and the examiner calculated 25% profit on cost of ordinary sales.
Some help is required here.20% of selling price is the same as 25% of cost.
Suppose something is sold for 100. Then the profit is 20% x 100 = 20, and therefore the cost is 100 – 20 = 80.
Therefore the profit is 20/80 = 25% of cost.
I do suggest that you watch our free lectures on mark-ups and margins.
@johnmoffat said:
20% of selling price is the same as 25% of cost.Suppose something is sold for 100. Then the profit is 20% x 100 = 20, and therefore the cost is 100 – 20 = 80.
Therefore the profit is 20/80 = 25% of cost.
I do suggest that you watch our free lectures on mark-ups and margins.
Hi sir! 🙂 I actually have a good grasp on mark-ups and margins but despite that i struggled to come at a correct answer.Can you please explain a little bit how D is the correct answer?
Thanks 🙂In future, you must ask in the Ask the Tutor Forum is you want for me to answer – this forum is for students to help each other.
The cost of the sales to Harry is 100/110 x 8,030 = 7,300.
So the cost of ordinary sales is 342,000 – 7,300 = 334,700.
The selling price for ordinary sales is therefore 100/80 x 334,700 = 418,375.
Therefore total sales = 418,375 + 8,030 = 426,405
@johnmoffat said:
In future, you must ask in the Ask the Tutor Forum is you want for me to answer – this forum is for students to help each other.The cost of the sales to Harry is 100/110 x 8,030 = 7,300.
So the cost of ordinary sales is 342,000 – 7,300 = 334,700.
The selling price for ordinary sales is therefore 100/80 x 334,700 = 418,375.
Therefore total sales = 418,375 + 8,030 = 426,405
Thanks for the reply Sir! And next time i will be careful.
But should not we calculate 20% on $334,700 ? Because 334,700 is the cost of sales figure and to arrive at sales we have to put a 20% profit on cost of sales?No. The profit is 20% of sales.
So for every 100 sales, the profit is 20 and therefore the cost of sales is 80.
So for every 80 cost, the profit is 20, or 20/80 = 25% of the cost.
I do suggest that you watch my free lecture on markups and margins.
Our free lectures are a complete course for Paper F3 and cover everything needed to be able to pass the exam well.
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