Question

Executives of the Carrot Watch, Inc. (which produces Apple Watch knock-offs) produced the latest watch which is now ready for distribution. Carrot Watch sells to a wholesaler who then sells to retailers and ultimately end consumers. The following cost information is needed to answer the questions below for Carrot Watch, Inc.:

Carrot Watch packaging (direct material and labor)	$1.25/each
Carrot Watch raw materials for production	$4.95/each
Software on watch	$12.85/each
Rent and Fixed Salaries	$275,000
General overhead	$250,000
Selling price to distributor	$42.00

                                               

Calculate the following:

1. Unit Gross Profit Margin in both dollars and percent

2. Assume there were 12,000 watches sold. What is the TOTAL Gross Profit margin in dollars.

3. Manufacturer Margin (as a % of Selling Price)

Answer 1

Unit gross profit margin in amount is Selling price - Variable expense

Selling price =$42

Varaible expense = $1.25+$4.95+$12.85 = $19.05

Unit gross profit margin = $42-$19.05 = $22.95

Unit gross profit margin in percentage is( Unit gross profit margin / Selling price ) *100

=($22.95/$42)*100 = 54.64%

Now When 12000 units sold Total gross profit margin will be 12000*Unit gross profit margin in amount

=12000*$22.95 = $275400

Manufacturer Margin as a percentage of selling price will be

((Selling price - Total expense per unit)/Selling Price )*100

Total Expense per unit = Variable expense per unit + Fixed expense per unit

Fixed expense per unit = Fixed expense / Number of units

= ($250000+$275000)/12000 =$43.75

Total expense per unit = $19.05+$43.75 = $62.8

Manufacturer Margin as a percentage of selling price =(( $42-$62.8)/$42 )*100

=$-20.8/$42 = -49.52%

Manufacturers net profit margin at 12000 level of units is -49.52%

Manufacturers gross profit margin is same as Unit gross profit margin percentage ie 54.64%

Please make sure that the data provided is correct since the Manufacturers net profit margin is much negative

Please free to comment on any further clarification and provide feedback