VAT,profit calculation

[league_of_ordinary_men]

IMHO,Thank God I think I got it,you are the best I think I finally get it.I took the information you gave me and reviewed it with Dave A's information and did some calculations and I think I understand it now.The thing was I first needed to understand input and output VAT to answer my question.

Let's say I am VAT registered and I buy a product from my supplier for R100 + 14% VAT = R114 for the product,now that R14 I pay VAT on the product is there(the suppliers output VAT)but that R14 VAT I pay on the product is my input VAT that I can deduct from the VAT I owe SARS.So that product cost me R114 from the supplier including VAT,now I add my 5% markup to get R119.70 at which I sell the product.So I take R119.70 I divide it by 1.14 to get R105 markup it excludes VAT now I take R119.70 minus R105 markup = my VAT of R14.70 but now I deduct my input VAT of R14 I payed for the product and I get R0.70 cents VAT i owe to SARS?

What do you think?Am I on the right trake?

Let's take the R629 question I asked you.My competitor sell's the product at R629 including VAT so I divide it by 1.14 to get R551.75 excluding VAT so now I take R629 - R551.75 to get my output VAT of R77.25 then to get my input VAT I take the cost price of R525 X 1.14 =R598.5 then take R598.5 - the cost price of R525 and then get my input VAT of R73.50 then just subtract to get the VAT owed to SARS.And you say I should use markup to determine my prices?

[IMHO]

You have one thing right and that is that his output vat is your input vat. But somewhere you are losing it, because you get two different amounts in your calculations. I will have to go to a spreadsheet to try and see where you are making your mistake. (Or where I make my mistake, hehe... remember, I am not an accountant! and IMHO stands for 'in my humble opinion'.)

[IMHO]

You are 100% right, I could just not make sense of how it was explained, but once I put it on the spreadsheet as you go, it is all correct. You have got it. You will soon learn that all that calculations is not necessary on a day to day basis.

Next question, how to set your prices.

[IMHO]

To make it easier on yourself, decide whether you are going to work with inclusive or exclusive costs. Most suppliers quote exclusive, so that is probably the way to go. (Reading my last part, this is not crucial)

Next thing is decide if you are going to use markup or gross.

Markup is easier, so go with that, but make sure your markup is big enough to achieve your goal. You should also work out a realistic budget for your expected turnover, your expected expenses and the gross and nett profit you want to make.

So your life now turns around budgets, hehe.
You have a sales (turnover) budget. (Realistic thumb-suck)
You have a gross Budget. (Sales minus COS)
You have an expenses budget.

Say, with this info you decide that you need to markup by 25% as your gross budget is 20%.

To set your selling, you just multiply your cost by 1.25. If it was exclusive cost, the result is an exclusive selling. If it was an inclusive cost, the result is an inclusive selling. If the result was an exclusive selling, you need to multiply that by 1.14, to get an inclusive selling.

As easy as that. But remember, there is a thing called gross mix. We can come back to that when you confirm you understand so far.

[league_of_ordinary_men]

Hi IMHO,sorry for taking so long to reply been busy.Can you please explane Say, with this info you decide that you need to markup by 25% as your gross budget is 20%. to me a little more please.Thanks for sticking with me

[IMHO]

Which part? How to get the info or how to get the 25% from 20%

[league_of_ordinary_men]

How to get the 25% from 20% please.

[IMHO]

Remember the formulas of earlier post.

Gross
(Sell-Cost)/Sell x 100

Markup
(Sell-Cost)/Cost x 100

L_O_O_M, give a bit more info on the type and size of business you are in. Otherwise I give too much or too little info, confusing you. Do you sell one line from your garage or do you sell hundreds of lines in a shop?

[league_of_ordinary_men]

I am starting an online store with +- 8000 and adding we are almost live so due to being on probation with a supplier.So even thou I get I little confused some time I need to learn this ASAP.And without your help if wouldn't be possible.

[bjsteyn]

How to get the 25% from 20% please.

But to get to your selling price you marked up your product by 25%.

Once you have worked out your GP budget, you can calculate what your markup needs to be.

GP is worked out on selling price, where as markup is worked out on cost price.

Just my two cents.

[IMHO]

Well put, bjsteyn. Do you get it L_O_O_M ?

[IMHO]

	Incl.	Excl. (ex VAT)	VAT
Sales	119.70	105.00	14.70
Costs of Sales	114.00	100.00
Output VAT			14.70
Gross Profit		5.00 (4.76%)(5% MU)
Expenses		4.00 (3.8%)
Input VAT on COS			14.00
Input VAT on Exp.	2.28	2.00	0.28
VAT Due			0.42
Nett Profit		1.00 (0.95%)

Dave A, I have butchered your table a bit!

[Dave A]

Dave A, I have butchered your table a bit!

Well done. Not everyone grasps how to use tables (it is a bit fiddly, isn't it).

[IMHO]

Well done. Not everyone grasps how to use tables (it is a bit fiddly, isn't it).

Yes, I was intrigued by how you did it, so replied to your post with quote, to see what you did and use it as a template! Cheated!

[league_of_ordinary_men]

Thanks for the explanation bjsteyn.IMHO I think I get it now awesome table.What's next?