In: Accounting
MBI, Inc., had sales of $6 million for fiscal 2016. The company's gross profit ratio for that year was 31.2%.
a. Calculate the gross profit and cost of goods sold for MBI, Inc. for fiscal 2016.
b. Assume that a new product is developed and that it will cost $1,634 to manufacture. Calculate the selling price that must be set for this new product if its gross profit ratio is to be the same as the average achieved for all products for fiscal 2016.
c. From a management viewpoint, what would you do with all this information?
a) Gross Profit = $6,000,000*31.2% = $1,872,000
Cost of goods sold = Sales - Gross Profit = $6,000,000-$1,872,000 = $4,128,000 i.e. 68.8% of sales
b) Cost of goods sold = $1,634.
If the gross profit ratio must remain at 31.2% then the sale price should be-
$1,634/(1-0.312) = $2,375
c) From the gross profit ratio, the management can derive the following insights -