Interpretation of FS

Q] Vista Co is considering the purchase of a 100% subsidiary, Vantage Co. Extracts from the
statement of profit or loss for Vantage Co for the year ended 31 December 20X7 are shown
below: (in $000)

Revenue= 9,400
Cost of sales (including management fees)= (5,800)
Gross profit= 3,600

Vista Co expects that Vantage’s revenue and cost of sales for the year ended 31 December 20X8
will be very similar to those for 20X7 except for the effects of the following changes which will
be made as a result of the acquisition:

(i) Vista Co will supply Vantage Co with goods which Vista Co will sell at a mark up of 20% on
cost. These goods will cost Vantage Co $3 million and will replace identical goods that it
has previously purchased from another supplier at a mark up of 40%.
(ii) Vantage Co will pay an annual management fee of $400,000 to Vista Co.
Based on the figures above adjusted for the expected changes as a result of the acquisition,
what is the estimated gross profit margin for Vantage Co for the year ended 31 December
20X8?

MyDoubt=> Please explain how the “info (i)” is to be used, since my understanding was to completely eliminate just $3m since it’s inter co. sales, but the answer given shows extra workings that i don’t understand.

Thank you!