VAT - worked examples
Of Full Cost Apportionment
1. Cost of Goods
To calculate the average cost of frames
|
No of frames purchased in year |
= |
2,000 |
|
Total Cost of frames purchased |
= |
£20,000.00 |
|
Average Cost |
= |
20,000 |
|
2,000 |
||
Average cost per frame |
= |
£10.00 |
To calculate the average cost of lenses
|
No. of single lenses purchased in year |
= |
4,000 |
|
Total Cost of lenses purchased |
= |
£10,000.00 |
|
Average Cost |
= |
10,000 |
|
4,000 |
||
|
Average cost per lens |
= |
£2.50 |
Average cost per dispensing |
= |
£5.00 |
To calculate cost of in-house glazing
|
Total hours of DO |
= |
40 |
|
Hours on glazing |
= |
8 |
|
% of time on glazing |
= |
20% |
|
Salary Cost |
= |
£30,000.00 |
|
Consumables |
= |
£250.00 |
|
Lens glazed per year |
= |
4,000 |
|
Ave. cost of glazing per lens |
= |
(£30,000 x 20%) + £250.00 |
| 4,000 | ||
|
= |
£1.56 | |
Average cost of glazing per dispensing |
= |
£3.12 |
To calculate total average cost of goods per dispensing
|
Frames |
£10.00 |
|
Lenses |
£5.00 |
|
In house glazing |
£3.12 |
|
Cost |
£18.12 |
|
Plus VAT @ 17.5% |
£3.17 |
Total Cost |
£21.29 |
2. Cost of Service
For the purpose of this example, the income in the year is :
|
Sight Test Income |
£30,000.00 |
|
Spectacles Income |
£180,000.00 |
|
Contact Lens Income |
£30,000.00 |
|
Accessory Income |
£20,000.00 |
Total Income |
£260,000.00 |
Ophthalmic Optician
|
Average direct cost of OO over 3 years |
= |
£40,000.00 |
|
To determine costs of dispensing spectacles |
= |
Spectacles Income |
| Optical sales and sight test income | ||
|
= |
180,000 |
|
| 180,000+30,000+30,000 | ||
|
= |
75.00% | |
Cost of OO dispensing spectacles |
= |
£40,000 x 75% = £30,000.00 |
Dispensing Optician
|
Direct cost of employed DO |
= |
£30,000.00 |
|
Less in house glazing |
= |
£30,000 x 20% |
|
= |
£6,000.00 | |
|
Cost of professional activities |
= |
£24,000.00 |
|
To determine costs of dispensing spectacles |
= |
Spectacles Income |
| Spectacles and contact lens income | ||
|
= |
180,000 |
|
| 180,000+30,000 | ||
|
= |
85.71% | |
Cost of DO dispensing spectacles |
= |
£24,000 x 85.71% =
|
Directly Supervised Persons
|
Direct costs of employed DSP’s |
= |
£10,000.00 |
|
Involvement in dispensing spectacles |
= |
75.00% |
Cost of DSP dispensing
|
= |
£10,000 x 75% =
|
To calculate total cost of professional staff dispensing spectacles
|
Ophthalmic Optician |
£30,000.00 |
|
Dispensing Optician |
£20,570.40 |
|
Directly Supervised Persons |
£7,500.00 |
Total Cost |
£58,070.40 |
To calculate cost of professional service per dispensing
|
Total professional cost of dispensing spectacles |
= |
£58,070.40 |
|
Number of spectacles dispensed |
= |
2,000 |
|
Cost per dispensing |
= |
£58,070.40 |
| 2,000 | ||
Average cost of service |
= |
£29.04 |
3. Calculation of percentage of sales income liable to VAT
From the above calculations the cost of goods and services have been calculated as follows:
|
Cost of Goods |
= |
£21.29 |
|
Cost of Service |
= |
£29.04 |
Total Cost of supplying spectacles |
= |
£50.33 |
|
Sales Income |
= |
Cost of Goods |
| Cost of Goods plus Cost of Service | ||
|
= |
£21.29 |
|
| £50.33 | ||
Taxable element |
= |
42.30% |
Therefore, if spectacles sell for £90
|
Taxable Element |
= |
£90.00 x 42.30% |
|
= |
£38.07 |
|
|
VAT Due |
= |
£38.07 x 7/47 |
VAT due on spectacles |
= |
£5.67 |