Question

a) what are the definitions and business uses of calculating mark up and margin?

sales revenue               168,000
purchase                      (128,000)
Gross profit                     40,000
selling expenses           (20,000)
operating profit               12,800

b) calculate mark up (in percentage to 1 decimal place.

c) Calculate the margin as a % to 2 decimal places

d) what is the operating profit margin percentage of selling expenses is reduced by 30% show this to 2 decimal places.

e) Define the following and provide respective examples.

Explain simple interest and give examples
Explain compound and give examples
Explain Annuities and give examples

Answer 1

A)The margin, also referred to as gross margin, is a figure that shows the amount of revenue earned after the COGS has been deducted.

Margin can be expressed in dollar value or as a percentage. Margin is calculated by dividing the gross profit by the revenue

Margin = sales - cost of goods sold/sales.

Just like margin, markup also analyzes the profit made after making a sale.

However, markup looks at gross profit as a function of the cost of goods sold, rather than revenue.

In other words, whereas you divide the gross profit by revenue to calculate margin, you have to divide the gross profit by the COGS to determine the markup.

You can think of markup as the extra percentage on top of the cost of production that you charge your customers.

Mark up = sales - cost of goods sold / cost of goods sold.

E)Simple interest is when the interest on a loan or investment is calculated only on the amount initially invested or loaned. This is different from compound interest, where interest is calculated on on the initial amount and on any interest earned. As you will see in the examples below, the simple interest formula can be used to calculate the interest earned, the total amount, and other values depending on the problem.

Simple interest:

Interest = p*r*t

Where p=principle r=rate of interest and t =time period

Example

A 2-year loan of $500 is made with 4% simple interest. Find the interest earned.

Answer is Here we are given:

Time is 2 years: t=2

Initial amount is $500: P=500

The rate is 4%. Write this as a decimal: r=0.04

Now apply the formula:

I=Prt=500(0.04)(2)=40

Compound interest is the interest calculated on the principal and the interest accumulated over the previous period. It is different from the simple interest where interest is not added to the principal while calculating the interest during the next period.

Formula amount = p(1+r/100)t.

t given above is power.

Example

A sum of Rs.10000 is borrowed by Akshit for 2 years at an interest of 10% compounded annually. Calculate the compound interest and amount he has to pay at the end of 2 years.

Solution:

Given,

Principal/ Sum = Rs. 10000, Rate = 10%, and Time = 2 years

From the table shown above it is easy to calculate the amount and interest for the second year, which is given by-

Amount(A2) = P(1+R100)2

A2= =10000(1+10100)2=10000(1110)(1110)=Rs.12100

Compound Interest (for 2nd year) = A2–P = 12100 – 10000 = Rs. 2100.

An annuity is a series of payments made at equal intervals.[1] Examples of annuities are regular deposits to a savings account, monthly home mortgage payments, monthly insurance payments and pension payments. Annuities can be classified by the frequency of payment dates

There are present value annuity and future value annuity

The present value of an annuity is the current value of future payments from an annuity, given a specified rate of return, or discount rate.

Future value (FV) is a measure of how much a series of regular payments will be worth at some point in the future, given a specified interest rate. So, for example, if you plan to invest a certain amount each month or year, it will tell you how much you'll have accumulated as of a future date.