Accounting: What the Numbers Mean
Accounting: What the Numbers Mean
12th Edition
ISBN: 9781308841380
Author: David H. Marshall, Wayne W. McManus, Daniel F. Viele
Publisher: McGraw Hill
Question
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Chapter 9, Problem 9.10E
To determine

Concept Introduction:

Gross profit

Gross profit is the profit left with a company after deduction of all the costs incurred for creating or selling a product or for providing a service. Gross profit is presented on the income statement of the company and can be calculated using the following formula:

  Gross Profit= Net Sales Cost of goods sold

Gross profit can also be computed with the help of formula given below:

  Gross profit= Sales×Gross Profit Ratio

Cost of goods sold Cost of goods sold is the costs incurred for manufacturing or acquiring the products sold by a company in a given year. It includes all the direct costs incurred for the products sold. It can be calculated using the given formula:

  Cost of goods sold= Sales Gross Profit

Requirement 1:

To calculate:

Gross profit and cost of goods sold for fiscal 2016

Expert Solution
Check Mark

Answer to Problem 9.10E

Gross profit is coming out to be $187.2 million and Cost of goods sold as $412.8 million

Explanation of Solution

Firstly, Gross profit is calculated with the help of formula given below:

  Gross profit= Sales×Gross Profit Ratio

In the given problem, it is given that sales are $600 million and Gross profit ratio as 31.2%.

  Thus, Gross profit= $600 million×31.2%= $187.2 million

Further, Cost of goods sold can be calculated using the given formula:

  Cost of goods sold= Sales Gross Profit Sales are given as $600 million in the given problem and we have calculated Gross profit at $187.2 million. Thus, Cost of goods sold would be:

  Cost of goods sold= $600 million $187.2 million= $412.8 million

Therefore, Gross profit is coming out to be $187.2 million and Cost of goods sold as $412.8 million.

To determine

Concept Introduction:

Cost of goods sold Cost of goods sold is the costs incurred for manufacturing or acquiring the products sold by a company in a given year. It includes all the direct costs incurred for the products sold. It can be calculated using the given formula:

  Cost of goods sold= Sales Gross Profit

Cost of goods sold if expressed in percentage form is termed as Cost of goods sold ratio and can be computed as below:

  Cost of goods sold ratio= 100% Gross Profit Ratio

Requirement 2:

To calculate:

Selling price for new product

Expert Solution
Check Mark

Answer to Problem 9.10E

Selling price to be set for new product= $2,375

Explanation of Solution

To calculate Selling price for new product, firstly Cost of goods sold ratio would be calculated using the following formula:

  Cost of goods sold ratio= 100% Gross Profit Ratio

It is given that Gross profit ratio is 31.2%, thus, cost 0f goods sold ratio would be:

  Cost of goods sold ratio= 100%- 31.2%= 68.8%

To calculate the selling price, following equation would be used:

  Selling price= Cost of product/ Cost of goods sold ratio

It is given that cost of product is $1,634 and cost of goods sold ratio has been calculated as 68.8%. Now, selling price that must be set for the new profit would be calculated as follows:

    Calculation of selling price for new product
    ParticularsAmount (in $)
    Cost of product
    1,634
    Cost of goods sold ratio
    68.8%
    Selling Price$2,375

Thus, the selling price that must be set for new product would be $2,375.

To determine

Concept Introduction:

Gross profit Gross profit is the profit left with a company after deduction of all the costs incurred for creating or selling a product or for providing a service. Gross profit is presented on the income statement of the company and can be calculated using the following formula:

  Gross Profit= Net Sales Cost of goods sold

Gross profit can also be computed with the help of formula given below:

  Gross profit= Sales×Gross Profit Ratio

Cost of goods sold Cost of goods sold is the costs incurred for manufacturing or acquiring the products sold by a company in a given year. It includes all the direct costs incurred for the products sold. It can be calculated using the given formula:

  Cost of goods sold= Sales Gross Profit

Cost of goods sold if expressed in percentage form is termed as Cost of goods sold ratio and can be computed as below:

  Cost of goods sold ratio= 100% Gross Profit Ratio

Requirement 3:

Usage of the information for management

Expert Solution
Check Mark

Answer to Problem 9.10E

Gross profit ratio is used by the managers to estimate whether the firm is operating at a level of sales that will lead to profitability. Also, gross profit ratio is used to set the selling prices of products.

Explanation of Solution

Gross profit ratio is a measure of the amount of each sales dollar that is available to cover operating expenses and profit and therefore is used by the manager to estimate whether the firm is operating at a level of sales that will lead to profitability.

Also, gross profit ratio is used to set the selling prices of products. If the manager knows the gross profit ratio required to achieve profitability, the cost of the item can be divided by the gross profit ratio to arrive at selling price.

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Give me the answer in a clear organized table please. Thank you!
Give me the answer in a clear organized table please. Thank you!
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