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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.

Answer and Explanation:

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%


Learn more about this topic:

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How to Calculate Gross Profit Margin: Definition & Formula

from Financial Accounting: Help and Review

Chapter 5 / Lesson 17
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