How is mark-up calculated?

gross profit ÷ cost of sales × 100. Mark-up is measured on cost.

Goods cost $200 and are sold for $250. What is the mark-up?

25%. Gross profit of 50 on a cost of 200.

Goods cost $200 and are sold for $250. What is the margin?

20%. Gross profit of 50 on sales of 250.

Revenue is $50 000 and the margin is 40%. What is the cost of sales?

$30 000. Gross profit is 20 000, so cost of sales is 50 000 − 20 000.

A mark-up of one third is the same as a margin of:

one quarter. Cost 3, profit 1, selling price 4: the profit is a quarter of the price.

Cost of sales is $36 000 and the rate of inventory turnover is 9 times. Opening inventory was $3500. What is the closing inventory?

$4500. Average inventory = 36 000 ÷ 9 = 4000, so the two inventories total 8000. 8000 − 3500 = 4500.

Mark-up, margin and missing figures · Cambridge IGCSE Accounting (9

In plain words

Gross profit can be measured against what the goods cost, or against what they sold for. The first is the mark-up and the second is the margin. When records are missing, knowing either one lets you rebuild the figures you do not have.

7 things to know

Mark-up = gross profit ÷ cost of sales × 100. Margin = gross profit ÷ revenue × 100.
The same gross profit gives a mark-up that is always bigger than the margin, because cost of sales is smaller than revenue.
They convert as fractions. A mark-up of one quarter (25%) is a margin of one fifth (20%). A mark-up of one third is a margin of one quarter (25%). A mark-up of one half (50%) is a margin of one third.
Given the mark-up and the cost of sales: gross profit = cost of sales × mark-up, and revenue = cost of sales + gross profit.
Given the margin and the revenue: gross profit = revenue × margin, and cost of sales = revenue − gross profit.
Once cost of sales is known, a missing inventory or purchases figure follows from: cost of sales = opening inventory + purchases − closing inventory.
The rate of inventory turnover can be used the same way: average inventory = cost of sales ÷ rate of inventory turnover.

Worked example

Revenue for the year is $80 000 and the margin is 25%. Opening inventory was $7000 and purchases were $62 000. The closing inventory was destroyed in a fire. Find its value.

Gross profit = 25% of 80 000 = $20 000.
Cost of sales = 80 000 − 20 000 = $60 000.
Cost of sales = opening inventory + purchases − closing inventory, so 60 000 = 7000 + 62 000 − closing inventory.
Closing inventory = 69 000 − 60 000 = $9000.

Tips and tricks

Mark-up is on cost. Margin is on sales. Read the question for which one is given before doing anything.
Lay out a trading section with the gaps left blank, then fill in what you know. The missing figure is whatever makes it add up.

6 questions, about 2 minutes.

It lands in your notebook with its questions as flashcards.

Mark-up, margin and missing figures: 6 questions and answers

These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.

How is mark-up calculated?
- gross profit ÷ revenue × 100
- gross profit ÷ cost of sales × 100 (the answer)
- revenue ÷ cost of sales × 100
- profit for the year ÷ revenue × 100
Mark-up is measured on cost.
Goods cost $200 and are sold for $250. What is the mark-up?
- 20%
- 25% (the answer)
- 50%
- 80%
Gross profit of 50 on a cost of 200.
Goods cost $200 and are sold for $250. What is the margin?
- 20% (the answer)
- 25%
- 50%
- 80%
Gross profit of 50 on sales of 250.
Revenue is $50 000 and the margin is 40%. What is the cost of sales?
- $20 000
- $30 000 (the answer)
- $35 000
- $70 000
Gross profit is 20 000, so cost of sales is 50 000 − 20 000.
A mark-up of one third is the same as a margin of:
- one half
- one third
- one quarter (the answer)
- one fifth
Cost 3, profit 1, selling price 4: the profit is a quarter of the price.
Cost of sales is $36 000 and the rate of inventory turnover is 9 times. Opening inventory was $3500. What is the closing inventory?Stretch
- $4000
- $4500 (the answer)
- $7500
- $8000
Average inventory = 36 000 ÷ 9 = 4000, so the two inventories total 8000. 8000 − 3500 = 4500.

6 questions

Tap an answer and you’ll see straight away whether it’s right, and why.

Worksheet

3 questions, 7 marks. Write your answers on paper, then check them.

Mark-up, margin and missing figures

Cambridge IGCSE Accounting (9–1) 0985 · 7 marks · papermunch.org

Name ______________________________ Date ______________

Cost of sales is $48 000 and the mark-up is 25%. Calculate the revenue.[2]
Show answerHide answer
$60 000. Gross profit = 25% of 48 000 = 12 000, and 48 000 + 12 000 = 60 000.
I got this one
Revenue is $120 000 and the margin is 30%. Opening inventory is $10 000 and closing inventory is $12 000. Calculate the purchases.[3]
Show answerHide answer
$86 000. Gross profit = 36 000, so cost of sales = 84 000. Purchases = 84 000 − 10 000 + 12 000.
I got this one
A business has a mark-up of 50%. State its margin as a fraction and as a percentage.[2]
Show answerHide answer
One third, or 33.33%.
I got this one

Answers: Mark-up, margin and missing figures

1. $60 000. Gross profit = 25% of 48 000 = 12 000, and 48 000 + 12 000 = 60 000.
2. $86 000. Gross profit = 36 000, so cost of sales = 84 000. Purchases = 84 000 − 10 000 + 12 000.
3. One third, or 33.33%.