Question

A company shows the following balances:

Sales $1,200,000
Sales Returns and Allowances $175,000
Sales Discounts $25,000
Cost of goods sold $600,000

What is the average profit percentage?
A. 50%
B. 60%
C. 40%
D. 33%

Answer 1

The average profit percentage is calculated by deducting Sales Returns, Allowances, and Discounts from total Sales to obtain net sales, subtracting Cost of Goods Sold to find the gross profit, and then dividing the gross profit by net sales. The result is 40%, which makes option C the correct answer.

Step-by-step explanation:

The question at hand involves calculating the average profit percentage for a company based on given financial figures. To find this, we should first calculate the net sales by subtracting Sales Returns and Allowances and Sales Discounts from the total Sales. Then, we subtract the Cost of Goods Sold from the net sales to find the gross profit. The average profit percentage is the gross profit divided by net sales, expressed as a percentage.

Let's go through the calculation:

1. Net Sales = Sales - Sales Returns and Allowances - Sales Discounts = $1,200,000 - $175,000 - $25,000 = $1,000,000
2. Gross Profit = Net Sales - Cost of Goods Sold = $1,000,000 - $600,000 = $400,000
3. Average Profit Percentage = (Gross Profit / Net Sales) × 100 = ($400,000 / $1,000,000) × 100 = 40%

Therefore, the correct answer is C. 40%.