Question

Determine the gross profit percentage for the year ended December 31

Selling Expenses $8,500 Interest Revenue 2,000 Net Sales Revenue 150,500 Cost of Goods Sold 80,000 Administrative Expenses 10,000

I know its gross profit / net sales rev = gross profit percent. I just need help visualizing it with the numbers. what makes the gross profit?

Answer 1

	TRADING AND PROFIT AND LOSS ACCOUNT
D E B I T	Amount in $	C R E D I T	Amount in $
To Cost of goods sold	80,000	By Sales	1,50,500
Gross profit	70,500
	1,50,500		1,50,500
		By Gross profit brought down	70,500
To Selling expense	8,500	By interest revenue	2,000
To Administrativ expenses	10,000
To Net profit	54,000
	72,500		72,500
Gross profit ratio = (Total revenue -Cost of goods sold) / Net revenue
Therefore GP ratio =	46.84%
Net profit ratio = Net profit / Net revenue
Therefore Net profit ratio =	35.88%
1) Selling and adminstration expense are indirect cost as they did not form part of the cost of goods sold.
2) Gross profit margin is a measure of profitability that shows the percentage of revenue that exceeds the cost of goods sold (COGS). The gross profit margin shows how successful an entity management team is in generating revenue, considering the costs involved in manufacturing of goods or services.