Answer to Question #210219 in Accounting for Fortuin

Question

Nomzi Traders sold furniture to a customer for R1 610 cash, the mark up on cost is 20%. Assuming Nomzi Traders uses a perpetual inventory system, is a registered VAT vendor and the VAT rate is 15%. (Round your answer off to the nearest Rand.) 

What will the cost of sales be for this transaction?

 

Answer 1

Solution:

Sales = Cost + mark-up

When calculating cost and sale price, VAT is normally excluded.

Therefore, we start by first eliminating VAT from the sales:

Sales inclusive of 15$\%$ VAT = 1,610

Sales exclusive of 15$\%$ VAT = $\frac{100}{115} \times 1,610 = 1,400$

Now, determine cost:

Cost + mark-up = Sales

100$\%$ + 20$\%$ = 120$\%$

100$\%$ + 20$\%$ = 1,400

Therefore:

Cost of sales = $\frac{100}{120} \times 1,400 = 1,166.67 = 1,167$

The cost of sales for this transaction = R1,167