Chapter 9, Problem 9.1ME

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:

  $GrossProfit=NetSales-Costofgoodssold$

When gross profit is expressed in the percentage form, it is known as Gross profit ratio and can be calculated using below- mentioned formula:

  $GrossProfitRatio=GrossProfit/NetSales$

Requirement 1:

To calculate:

Gross profit and gross profit ration of the company

Answer to Problem 9.1ME

  $\begin{array}{l} \hfill \\ Grossprofit=\$4,50,000-\$2,97,000=\$1,53,000\hfill \end{array}$

  $Grossprofitratio=\$1,53,000/\$4,50,000=34\%$

Explanation of Solution

Gross profit is calculated using the following formula:

  $GrossProfit=NetSales-Costofgoodssold$

In the given problem, it is given that Net sales of the company are $4, 50,000 and cost of goods sold is $2, 97,000. Thus, gross profit would be:

  $\begin{array}{l} \hfill \\ Grossprofit=\$4,50,000-\$2,97,000=\$1,53,000\hfill \end{array}$

Further, Gross profit ratio can be calculated using below- mentioned formula:

  $GrossProfitRatio=GrossProfit/NetSales$

  $Therefore,Grossprofitratio=\$1,53,000/\$4,50,000=34\%$

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.

Cost of goods when expressed in percentage form is termed as Cost of goods sold Ratio and can be calculated as follows:

  $CostofgoodssoldRatio=Costofgoodssold/Netsales$

Requirement 2:

To calculate:

Maximum cost per unit

Answer to Problem 9.1ME

  $Maximumcostperunit=\$75perunit\times 66\%=\$49.50$

Explanation of Solution

For calculating maximum cost per unit, firstly Cost of goods ratio would be calculated using the following formula:

  $CostofgoodssoldRatio=Costofgoodssold/Netsales$

In the given problem, it is given that Cost of goods sold is $2, 97,000 and Net sales of the company are $4, 50,000. Therefore, cost of goods ratio would be:

  $Costofgoodsratio=\$2,97,000/\$4,50,000=66\%$

Now, maximum cost per unit can be calculated using the following equation:

Maximum cost per unit= Expected selling price*Cost of goods sold ratio

In the given problem, Expected selling price is given as $75 per unit and cost of goods ratio has been calculated as 66%. Therefore, maximum cost per unit would be:

  $Maximumcostperunit=\$75perunit\times 66\%=\$49.50$