Cost of Goods Margin
Figurewizard calculates the value of purchases of goods for the year from the gross profit margin you enter on the form (e.g. 100% less GP 44% = 56%) plus the difference between opening and closing stock / inventory.
This is why you are not required to try to estimate annual purchases as our system calculates this for you from the information for gross profit margin and opening and closing stock / inventory values you enter on the form.
It is important to note that the gross profit margin that you enter must reflect not just the cost of goods but any charges incurred in getting them on the shelf, such as the cost of having the goods shipped to your business, import duty and import clearance charges as well as any added value materials or work performed in-house before offering them for sale. Such charges belong in cost of goods not overheads.
Calculating Purchases
The example below shows how annual purchases are calculated - The example assumes a gross profit margin of 44%, making the cost of goods sold margin for the year 56% of sales. The vlaue of opening stock or inventory is £20,000 and closing stock or inventory £35,000.
| Sales | £1,000,000 |
| Cost of goods sold margin | 56% |
| Opening stock / inventory | £20,000 |
| Closing stock / inventory | £35,000 |
| Increase in stock / inventory | £15,000 |
| add: Cost of goods sold | £560,000 |
| Annual Purchases | £575,000 |
The monthly percentages of total annual purchases are then applied to the purchases account by our system in line with your monthly percentages of total annual sales. Our system calculates and applies all VAT transactions.