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Dear members/ lecturers,
if someone may help on question below
Dec 2008 question 2 part c
I cant understand how gross profit for year 3 & 4 are calculated.
in the answer booklets it is said thatGProfit year 3 (40-5)/(100(0.95) = 36.8421052%*Sales revenue
Gprofit year 4 (40-5-4.75)/100(0.95)(0.95) = 0.335180055*salesrevenuewhy should we divide by (100)(0.95) and 100(0.95)(0.95) ?
thanks a lot for your help
with thanks
I think you actually mean question 1 (not question 2)
Although the examiners answer is correct, it is not very well explained.
In the first two years, the GP is 40%. So…..for every 100 sales, the cost will be 60 and the profit 40.
If sales price falls by 5%, the the sales falls to 95 but the costs stay at 60, which gives profit of 35.
So….the profit % becomes 35/95 = 36.842%
Same idea for the following year.
(Whats probably easier is to do what the examiner mentions below this part of the answer, and to calculate the costs per unit. They stay the same, and so the profit each year is the revenue less the costs. It takes a little longer, but in the middle of the exam is maybe more obvious)
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