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i got this question from the revsion mock test in this site i cant copy paste the question so i would just write a bit
at what value will the closing inventory of algis be reported in its statement of financial position At 30 april 2014 and the answer is 1460000 and i am getting 1437600..how ?
let me write the whole question
at the end of the year the closing inventory was valued at cost of 1.46m and goods costing 140000 were damaged and their normal selling price is achieved by adding 30% markup on cost ..an agent will sell this goods at 75% of normal selling price and will charge a commission of 20%.. what is the value of closing inventory ??It cannot possibly be the answer that you say is noted – if we start with 1,460,000 and we have this damaged inventory, we surely cannot finish with 1,460,000
140,000 at normal selling price will be 182,000 (140,000 x 130%)
75% of normal selling price is 136,500
Commission is 27,300 (20% x 136,500)
Net realisable value will be 109,200 for that 140,000 worth of inventory
But the remainder of the inventory (1,460,000 – 140,000) is correctly valued and is 1,320,000
That, together with the written down inventory, gives a total value of 1,320,000 + 109,200 = 1,429,200
Now, if you had written out the question correctly, you would have typed “achieved by adding 40% markup on cost ..” instead of what you have typed “achieved by adding 30% markup on cost”
So, applying the correct percentage, we arrive at:
140,000 at normal selling price will be 196,000 (140,000 x 140%)
75% of normal selling price is 147,000
Commission is 29,400 (20% x 147,000)
Net realisable value will be 117,600 for that 140,000 worth of inventory
But the remainder of the inventory (1,460,000 – 140,000) is correctly valued and is 1,320,000
That, together with the written down inventory, gives a total value of 1,320,000 + 117,600 = 1,437,600
IF you’re correct in recording the printed answer as being 1,460,000, then it’s my mistake and I agree with you that the answer should be 1,437,600
Oh certainly it would have been my typing mistake of that 30% ..and if it would have been achieved by adding 40% margin then we will convert into markup and that would be multiplying with 40/140 ??
Yeah I am okay.. But I had another question that if it was written that normal selling price is achieved by adding margin of 40% so we will multiply the cost of 140000 with 40/140 and the amount will be 180000 .. Right? ?
No
If we’re looking for a 40% margin, then the cost of the goods (140,000) must be 60% of the selling price
That would give us 93,333 as the profit and a sales price of 233,333
and , of course, 93,333 is 40% of the selling price (40% x 233,333 = 93,333)
OK?
If you’re talking about mark up, then that would be 40% of 140,000 = 56,000 and a selling price of 196,000
“Oh yes
As margin = markup/100 + markupAnd markup = margin /100- margin
Ryt??”
WHAT?????
Margin is a percentage based on selling price
Mark-up is a percentage based on cost
I cannot make head nor tale out of your comments (and that’s a really good reason why you shouldn’t get involved with answering questions on Ask the Tutor!)
margin = markup/100 + markup
And markup = margin /100- margin
i meant that this is the formula if u want to convert a markup percentage into a margin and vice versa..
So what you’re saying is that a mark-up percentage of 25% converts like this ….
25/100 + 25 = margin
Is that right?
So margin is 25.25?
Or is it 25/(100 + 25)
So margin is 1/5
WHY??
Why are you bothering trying to remember this?
What’s the problem with “cost + profit = selling price”, putting the percentage in the middle, putting the 100 appropriately and getting the answer
Do you think that you’re ever going to be asked to convert margin into mark-up?
Ever?
Or is it 25/(100 + 25)
so margin is 1/5this one i was talking about ..
the problem in “cost + profit = selling price” is sometimes i make mistake when it says margin on cost so its better i convert into markup as markup is always on cost and margin is always on selling price..
“margin on cost”
I can’t remember ever, ever, ever reading “margin on cost”
Never
sorry i meant that
in a question when its given that the firm achieves the normal selling price by adding a margin of xx% and the cost is given..so we cant apply margin on cost to find profit so will have to convert into markup and then apply ..i meant that 🙂
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