Question

In: Accounting

Distinguish between gross profit as a percentage of cost and gross profit as a percentage of sales price.


Distinguish between gross profit as a percentage of cost and gross profit as a percentage of sales price. Convert the following gross profit percentages based on cost to gross profit percentages based on sales price: 25% and 33 1 /3%. Convert the following gross profit percentages based on sales price to gross profit percentages based on cost: 33 1 /3% and 60%.

Solutions

Expert Solution

*Distinguish between gross profit as a percentage of cost and gross profit as a percentage of sales price

Gross margin (gross profit): Gross margin is the amount of revenue earned from goods sold over the costs incurred for the goods sold.

Gross profit percentage on sales: The percentage of gross profit generated by every dollar of net sales is referred to as gross profit percent

Gross profit percentage on cost = The percentage of gross profit generated by every dollar of cost of goods is referred to as gross profit percent on cost

*Convert the following gross profit percentages based on cost to gross profit percentages based on sales price: 25% and 33 1 /3%

Gross profit percentage on sales = Gross profit percentage on cost / ( 1 + Gross profit percentage on cost )

Put the value in to formula for trail and error

Gross profit percentage on sales = 25% / (1+25% )= 20% - not correct need to get 33 1/3%

Gross profit percentage on sales = 33 1/3% / ( 1 + 33 1/3% ) = 25%

So here

Gross profit percentage on sales = 25%

Gross profit percentage on cost= 33 1/3% = 33.33333%

*Convert the following gross profit percentages based on sales price to gross profit percentages based on cost: 33 1 /3% and 60%

Gross profit percentage on sales = 33 1 /3% / (1+33 1 /3% )= 25% - not correct need to get 60%

Gross profit percentage on sales = 60% / ( 1 + 60% ) = 33 1/3%, approximate

So here

Gross profit percentage on sales = 33 1/3%

Gross profit percentage on cost= 60%

ekkarill92 answered 2 years ago
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