Question

During the current year, merchandise is sold for $898,000. The cost of merchandise sold sold is $664,520.

a. What is the amount of the gross profit?
b. Compute the gross profit percentage (gross profit divided by sales). Round to the nearest whole number.
c. When will the income statement necessarily report a net income?

Answer 1

(a) $233,480

(b) $26%

Step-by-step explanation:

1. Sales = $898,000

Cost of Goods Sold = $664,520

Gross Profit = $233,480

2.Gross Profit Margin = Gross Profit ÷ Sales

= $233,480 ÷ $898,000

= 26%

3. The Income Statement will not necessarily report a profit despite the gross profit margin is high.

This is due to the fact that the organisation may be cost inefficient in operating costs leading to a loss.