IMHO,thanks for the help.Can you please help me with this calculation.My competitor sells a product for R629 I get it at cost price for R525 can you please help me calculate for an example how much his VAT,profit,markup.....etc is please.
IMHO,thanks for the help.Can you please help me with this calculation.My competitor sells a product for R629 I get it at cost price for R525 can you please help me calculate for an example how much his VAT,profit,markup.....etc is please.
IMHO,I for got to add the R525 cost price is exclusive of VAT.
Your question force me to make the following assumptions:
You both buy from the same supplier that is VAT registered.
Your competitor is VAT registered.
You are not VAT registered.
Competitor pays the same price as you.
You both get a VAT invoice.
Competitor:
Cost R598.50 incl R525 excl
Sell R629 incl R551.75 excl
Output VAT R77.25
Input VAT R73.50
VAT paid R3.75
Profit: R 26.75 4.85% Gross 5.09% Markup
You:
Cost R598.50
Sell R629
Output VAT NIL
Input VAT NIL
VAT paid NIL
Profit: R 30.50 4.85% Gross 5.09% Markup
Percentages is the same, but you made R3.75 more.
Remember one thing, his Input VAT is slightly more, as he is allowed to claim other input vat on his other expenses.
Therefore he will probably pay R3.70 vat instead of R3.75. This is different for all business, as the nature of expenses is different.
Last edited by IMHO; 22-Jul-12 at 02:43 PM. Reason: Made adjustment for excl cost
~Expenses will eat you alive! - My first Boss~
How did you do that calculation please.
I do not know what you are revering to. To go from excl to incl, multiply by 1.14.
From inclusive to exclusive, divide by 1.14.
Output VAT is the difference between incl. sell and excl. sell.
Input VAT is the difference between incl cost and excl cost.
Gross and Markup I have shown before.
Profit is the difference between excl sell and excl cost.
If you take incl sell minus incl cost, you get an incl profit, divide that by 1.14 and you have excl profit.
Profit can only be excl.
~Expenses will eat you alive! - My first Boss~
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?
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'.)
~Expenses will eat you alive! - My first Boss~
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.
~Expenses will eat you alive! - My first Boss~
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.
~Expenses will eat you alive! - My first Boss~
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
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