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Given below are account balances for Charlie Company: Gross sales $92,000 Sales returns and...

Question:

Given below are account balances for Charlie Company:

Gross sales $92,000
Sales returns and allowances $6,000
Selling expenses $12,000
Cost of goods sold $44,000
Interest expense $3,000

How much is the gross profit margin?

Gross Profit Margin:

The gross profit margin is the ratio of the company's gross profit relative to its net sales revenue. The gross profit is the difference between the sales revenue and the cost of goods sold. It is the income generated by the company before meeting the operating and nonoperating expenses.

Answer and Explanation:


Answer:

Charlie Company's gross profit margin is 48.84%.

Explanation:

As per the data provided by Charlie Company:

  • Gross sales = $92,000
  • Sales returns and allowances = $6,000
  • Cost of goods sold = $44,000

Computation:

The first step is to determine the net sales

  • Net sales = Gross sales - Sales returns and allowances
  • Net sales = $92,000 - $6,000
  • Net sales = $86,000

The second step is to determine the gross profit margin:

  • Gross profit margin = (Net sales - Cost of goods sold) / Net sales
  • Gross profit margin = ($86,000 - $44,000) / $86,000
  • Gross profit margin = 48.84%

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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