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The following is Talley Company's income statement for the past year. Sales revenue $540,000...

Question:

The following is Talley Company's income statement for the past year.

Sales revenue $540,000
Cost of goods sold 324,000
Gross margin 216,000
Operating expenses 126,000
Operating income $90,000

1) What is the mark-up percentage on the cost of goods sold?

2) What is the mark-up percentage on the total cost?

3) What is the gross margin percentage?

4) If the company wants to sell a new product that costs $42 wholesale while keeping the same mark-up structure, What will be the price of the new product?

Markup Percentage:

Markup in accounting refers to the amount that is added to the cost of merchandise inventory to calculate the selling price, in other words, markup is the amount added to cover operating expenses and generate profits.

Answer and Explanation:


1) The mark-up percentage on the cost of goods sold is:

Gross profit $216,000
Cost of goods sold 324,000
Mark-up percentage on the cost of goods sold 66.67%
($216,000 / $324,000)


2) The mark-up percentage on the total cost is:

Gross profit $216,000
Cost of goods sold 324,000
Operating expenses 126,000
Total cost $450,000
Mark-up percentage on the total cost 48%


3) The gross margin percentage is:

Sales revenue $540,000
Cost of goods sold 324,000
Gross margin $216,000
Gross margin percentage 40%
($216,000 / $540,000)


4) The price of the new product will be:

Wholesale cost $42
Markup on cost of goods sold 66.67%
Selling price $70



Learn more about this topic:

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How to Calculate Markup: Definition & Formula

from Principles of Marketing: Help and Review

Chapter 12 / Lesson 22
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