Messed up the easy 1. Question 4, got the rest correct. This is pure example of how an examiner can fool you with basic English, I got trapped. Read the questions properly before answering guys.

Sir, I also got wrong for Q.1, very confused about the % of cost-plus, mark up, and gross profit margin, can provide some hits for easy identify the equation?

And for the absorption costing, fixed overhead costs should be allocated to a product whether or not it was sold in the period, but why the overhead cost $5 is excluded here?

The overhead cost has not been excluded. The total cost is 10 + 8 + 3 + 5 = $26.

The gross profit margin is the profit as a % of the selling price. So for every $100 selling price, the profit is $20 and therefore the cost is $80. Putting it the other way round, for every $80 cost, the selling price is $100. Therefore for a cost of $26, the selling price must be 100/80 x $26.

(Mark-up is the profit as a % of the cost. You can find more examples of both the gross margin and the mark-up in the Paper FA lectures on “mark-ups and margins”)

I am a bit confused here. Price demand equation is P= a-bQ . Therefore the answer should be P=75-.0025Q and I have got it wrong. Could you please explain.

I just want to understand something. there are three ways
1. 100/80 * 26
2. 120/100 * 26
3. 26*100/20

like on absorption costing question about selling price,i got it wrong coz i am always confused when it comes to the three ways. like the way the questions are asked,how best can l know which one to use.?

If the profit is 20% of the sales then the cost must be 80% of the sales. Therefore the sales must be the cost divided by 80% (which is the same as multiplying by 100/80).

12345678tp says

how the answer be 31.2 when the question said the gross profit margin is 20% and not the net profit margin

kvz911 says

Messed up the easy 1. Question 4, got the rest correct. This is pure example of how an examiner can fool you with basic English, I got trapped. Read the questions properly before answering guys.

lwhnatalie says

Sir, I also got wrong for Q.1, very confused about the % of cost-plus, mark up, and gross profit margin, can provide some hits for easy identify the equation?

And for the absorption costing, fixed overhead costs should be allocated to a product whether or not it was sold in the period, but why the overhead cost $5 is excluded here?

John Moffat says

The overhead cost has not been excluded. The total cost is 10 + 8 + 3 + 5 = $26.

The gross profit margin is the profit as a % of the selling price. So for every $100 selling price, the profit is $20 and therefore the cost is $80. Putting it the other way round, for every $80 cost, the selling price is $100. Therefore for a cost of $26, the selling price must be 100/80 x $26.

(Mark-up is the profit as a % of the cost. You can find more examples of both the gross margin and the mark-up in the Paper FA lectures on “mark-ups and margins”)

daisy598 says

I confused on Q3. Why MR=500-0.006X how to get the 0.006?

John Moffat says

b = 30/1000 = 0.003

The formula provided for the marginal revenue contains 2b, and 2 x 0.003 = 0.006

Did you watch the free lectures before attempting the test?

Mitiksha says

question 2

Dear Sir,

I am a bit confused here. Price demand equation is P= a-bQ . Therefore the answer should be P=75-.0025Q and I have got it wrong. Could you please explain.

cadhakan says

Ya same here mitiksha.i also have same doubt.

cadhakan says

Ok I got it. This is my solution.

P = a – bq

So here I have to find first b= change in price/ change in qty

5/2000 = 0.0025

Next step is I have to find a so

P= a-bq

25 = a-(0.0025*20000)

a= 75

So therefore answer is p=75-0.0025q.

I hope u understand

John Moffat says

Correct 🙂

kissme4560 says

this question are really good

graygunners says

I just want to understand something. there are three ways

1. 100/80 * 26

2. 120/100 * 26

3. 26*100/20

like on absorption costing question about selling price,i got it wrong coz i am always confused when it comes to the three ways. like the way the questions are asked,how best can l know which one to use.?

John Moffat says

Unless the question specifically says differently, a profit margin is the profit as a % of the sales. A mark-up is the profit as a % of the cost.

(It may help you to watch the Paper FA lectures on mark-ups and margins.)

graygunners says

Thanks

riri2194 says

Thank you ! you explained it so well in that lecture

SumaiyaBapu says

Hello Sir,

i hope you are well. One Qs; i do not understand why you did 100/80*26 Can you please explain?

thank you,

John Moffat says

If the profit is 20% of the sales then the cost must be 80% of the sales. Therefore the sales must be the cost divided by 80% (which is the same as multiplying by 100/80).