A company earns a gross profit of 20% on cost. Its credit sales are thrice its cash sales. Its...

Question:

A company earns a gross profit of 20% on cost. Its credit sales are thrice its cash sales. Its credit sales are Rs 400,000. Calculate the Gross Profit Ratio of the company.

Gross Profit Ratio:

The gross profit of a business is the excess of the net sales over the cost of sales. The gross profit ratio is calculated by dividing the gross profit by the net sales and it is expressed as a percentage.

Answer and Explanation:

Given Information:

  • Gross profit = 20% of cost
  • credit sales= 3*cash sales
  • credit sales = $400,000
  • Gross profit ratio=?

For Gross profit ratio we will need to find gross profit and total sales (cash+credit)

Step 1 of 4

Find total sales

Total sales = cash sales + credit sales

{eq}Total sales = \frac{\mathrm{400,000} }{\mathrm{3} }+400,000 {/eq}

=$533,333.33

Step 2 of 4

Find cost on above sales

suppose cost is x

Gross profit = 0.20x

sales = Cost+Gross profit

$533,333.33 = X+0.20X

X = cost = $444,444.44

Step 3 of 4

Find Gross profit

Gross profit = 0.20 Cost

=0.20*444,444.44

=$88,888.88

Step 4 of 4

Find Gross Profit Ratio

{eq}Gross ~Profit ~Ratio= \displaystyle \frac{\mathrm{Gross~ Profit} }{\mathrm{Sales} } {/eq}

{eq}{Gross ~Profit ~Ratio= \displaystyle \frac{\mathrm{88,888.88} }{\mathrm{533,333.33} }}*100 {/eq}

=16.67%


Learn more about this topic:

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What Is Gross Profit? - Definition, Formula & Calculation

from FTCE Marketing 6-12 (057): Test Practice & Study Guide

Chapter 8 / Lesson 7
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