1

I'm passing trhough an issue that maybe is very simple for somebody has passed too.

I have to calculate the margin of a sale, it goes good but the problem comes when I have a minus.

Example
Sale price without VAT: 300.00
Cost price without VAT: 100.00
Calculation: (300.00-100.00)/300.00

Real life Example:
Sale price without VAT: 300.00
Cost price without VAT: -2100.00
Calculation: (300.00--2100.00)/300.00 (Totally Wrong).

What to do in this case? Has somebody passed over this?

Any help is really appreciated.

Jean Marie
  • 81,803
ndAR
  • 111
  • Why would a cost price have a minus sign? - what answer are you expecting? – mrnovice Apr 07 '17 at 11:07
  • Because: in the past month was sold for example 100 products, in this month they return 10 products that was sold by discount 100% this mean 0 sale price back to stock and 10 minus, so it would be -10xcost price, actual sale is 300 this month, but the cost price is only 100, so in total it goes to minus on cost price, this is the main issue. – ndAR Apr 07 '17 at 11:10
  • The denominator should be the cost price instead of the selling price. – callculus42 Apr 07 '17 at 18:33

1 Answers1

1

The key point is that your margins of sale are not ratio scaled. You don´t have a absolute zero point. Therefore the negative ratio is not meaningful.

But there is a way to handle this problem by applying the accrual principle.

Lets say you sale $100$ products in year $2015$ with the given selling price and cost price.

In year $2016$ $10$ of these products are returned and $50$ products are sold.

Now you act as if the $10$ returned products has never been sold in $2015$.

The margin in 2015 becomes $\frac{(300-100)\cdot (100-10)}{100\cdot (100-10)} =\frac{200\cdot 90}{100\cdot 90}=200\%$

And the margin in 2016 is $\frac{(300-100)\cdot 50}{100\cdot 50} =200\%$

Since the difference between the selling price and the cost price has not changed from the year $2015$ to the year $2016$ the margin is constant as well.

callculus42
  • 30,550