# Construct an operating statement (from Gross Sales to Net Sales to Net Profit) from the following...

## Question:

Construct an operating statement (from Gross Sales to Net Sales to Net Profit) from the following data and compute the gross margin percentage. (Remember, Net Sales typically represents 100% on the Income Statement and every line item on the statement is a percentage of Net Sales. These operating ratios are important analytical tools for measuring operating performance.)

 Purchases at billed cost \$15,000 Net sales 30,000 Sales returns and allowances 200 Cash discounts given 300 Cash discounts earned 100 Rent 1,500 Salaries 6,000 Opening inventory at cost 10,000 Advertising 600 Other expenses 2,000 Closing inventory at cost 7,500

## Gross margin

Gross margin is basically a ratio of gross profit to net sales, it shows the operating efficiency of an organization as to how efficiently the company is conducting its operations to maximize the revenue and minimize the cost.

 operating income statement amount Gross sales (net sales + return + discount given) 30,500 less:Sales returns and allowances 200 less:Cash discounts given 300 less:Cash discounts earned 100 Net sales 30000 add:Closing inventory at cost 7,500 total (A) 37,500 Net Purchases at billed cost (15000 - 100 discount earned) 14900 add: Opening inventory at cost 10,000 total B 24,900 gross profit C = A -B 12,600 Rent 1,500 Salaries 6,000 Advertising 600 Other expenses 2,000 total D 10,100 net income C-D 2,500

Gross margin % = gross profit/ net sales =12600/30000=42%