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FA Chapter 18 Questions Mark-up and Margins
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Absolutely blundered the whole chapter, back to the lectures I go! 馃榾
question 4 I really confused how you get 27.8% ?
please tell me how I can solve that question?
THANS SIR,
I understood my mistake
I am please that you have found your mistake 馃檪
Ok ! I spotted my mistake sir,
Cl.Inv = 836200
Therefore:
COS = Op.Inv + Pu – Return – Cl.Inv
9800 = X + 8600 – 700 – 836200
9800 – 8600 + 700 + 836200 = X
838,100 = X
And thankyou for the valuable questions. Quite a beneficial return for us !
X = 834,300
From my experience, It would take a little bit to step back from the discirmination of margin and markup, that can be analyzed as below:
– % markup = % profit = (sale – cost)/cost. So Cost = Sale/(1+%markup).
– % margin = % profit = (sale – cost)/cost. So Cost = Sale x % profilt.
These 2 functions helped me to understand more clearly the cases of using margin or markup.
Sorry, in the %margin, I mean Cost = Sale x (1-%margin)
Have you watched the free lectures on mark-ups and margins?
hi, for Q)5, what i dont get is the addition of cost of goods sold (9800). Since its a cost incurred during 31-4, shouldnt we be subtracting it?
Question 4 was a bit tricky, but I think it got it.
I hope so 馃檪
For quest… 5,can you please explain what is meant by”31 may 08 was based on an inventory count on 4 June 08″
2-Then in correction it said that inventory from 5 June. Can you please more simple explanation for question 5
They need to know what the inventory was on 31 May. However (as often happens in real life) they didn’t actually count it until 4 June.
By 4 June the inventory changed because they bought and sold goods between 31 May and 4 June. So we need to work backwards to calculate what the inventory must have been on 31 May.
(5 June in the pop-up answer should read 4 June)
For question 5, the answer is wrong. If goods are returned to suppliers, the inventory is supposed to reduce by the corresponding goods returned (700). The inventory is supposed to increase with purshases (8600) and reduce by sales (9800). Working it backwards or forward shouldn鈥檛 affect anything as the account is still closing at 31 May.
The answer is not wrong at all !! It is you that is wrong.
The returns, purchases and sales all took place between 31 May and 4 June.
If goods were returned after 31 May, then the inventory at 4 June will be lower than it was at 31 May – therefore the inventory at 31 May (which is what we want) will have been higher than it was on 4 June (which is when the inventory was counted).
The same logic applies to the purchases and sales.
This is a common question in the exam.
Oh my bad. I just got the whole scenario now. My mind was doing calculation based on 4 April
No problem 馃檪
For question 1 I don’t really understand how the cost of actual sales is 75%
The question says that the gross profit % is 25%. So if the profit is 25% of sales, then the cost of sales must be 75% of sales.
concerning question 4
gross profit / sales ..this formula has been used to calculate percentage ….why gross profit/ Cost of sale is used?
because in question markup or margin is not mentioned??
Gross profit % is automatically gross profit as a % of sales.
Hello sir
Question 2 .I do not understand why we subtract inventory to get to purchases figure .l thought since we are working backwards we would add inventory to get purchases of 149000 .please clarify
The cost of sales = opening inventory plus purchases less closing inventory = opening inventory less closing inventory plus purchases
Since closing inventory is lower that opening inventory, cost of sales = fall in inventory plus purchases.
Therefore purchases = cost of sales less the fall in inventory.
Please i still don’t understand what it meant by ”inventory decreased by 13200 dollars” for it to be deducted from purchases instead of adding. If there is another way to explain further I would be glad. Thanks.
If inventory falls then it means some of the inventory has been sold.
Suppose they sell 1,000 units and inventory has fallen by 100 units. It must mean that 100 of the 1000 units were taken from the inventory and so didn’t need to have been purchased. It is just the other 900 units that they needed to buy.
Hello, for question number 2, what is meant by inventory decreased by 13200 dollars ? Does it mean that the value of closing inventory is less than the opening one by 13200 ?
Yes – that is what it means 馃檪
hi,
in the question of 5, why we substract 8600, instead of addin?
Thanks beforehand
Because we are working back from 4 June to 31 May.
Purchases in June will have increased the inventory on 4 June, so we need to subtract them to find out what the inventory was on 31 May.
i couldnt understand why do we add returned goods in question 5.. I think the actual sold goods was (9800-700)
The question says that the goods are returned to the supplier (not returned by customers).
Hi,
I have a query about question 4.
Why does profit increase by 10k in proportion to revenue? Surely if revenue increases by 10k, then profit on that revenue would only be a fraction of it?
Why? The revenue was stated wrongly so we correct it by increasing it. Increasing it by 10,000 to get the correct revenue figure does not change the cost of goods sold and therefore increases the profit by 10,000.
Hi I have a query about question 4, it is the same question as Harry, “Why does profit increase by 10k in proportion to revenue? Surely if revenue increases by 10k, then profit on that revenue would only be a fraction of it?”
I do not quite understand your response, what you are saying is because the cost of goods sold does not change the profit must also increase by 10,000.
The profit is a mark up on the cost of goods, which means the profit will be a fraction of the cost of goods sold, why increase profit by the full 10,000
Stating that revenue is understated simply means that they have recorded the figure as 10,000 lower than it should have been.
It does not mean that they have sold more goods – simply that the figure is wrong. Maybe they added up the account wrongly, or maybe they simply copied the figure wrongly!
The wording may seem confusing, but this is the wording from an actual past exam question.
How to calculate cost of purchase in questions given revenue
and inventory decrease?
You use the mark-up or margin % (whichever is given) to calculate the cost of goods sold.
If inventory is decreasing then purchases will be the cost of goods sold less the decrease in inventory.
What is the difference between profit and mark-up?….. is there any at all…..
I assume that you are referring to mark-ups and profit margins.
They are two different things and are dealt with in my free lecture on mark-ups and margins.
(Our lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well. You should not really be attempting these tests without having watched the lectures 馃檪 )
In question 4 , Revenue have been understated by 10000, therefore why ( 80000+10000 = 90000 ) ….why not 70,000 ?
Understated means that it is currently stated smaller than it should be.
So the correct figure for revenue should be higher.
the answer is not matching with question. can you please explain it to me in detail here?
the correct answer is 123,000 but in solution the answer became 122,856. it is really confusing me.
The answer does match with the question!!!
The question asks for the answer “to the nearest $1,000” (which is common in the real exam).
122,856 to the nearest thousand is 123,000.
(In future please give the number of whichever question you are referring to)
thank you sir.
I again commented a question mark bcz if I don’t comment I cant see my previous question.
You are welcome 馃檪