Question

Auburn Company sells air conditioners. Consider the following financial information of the company for the last year:

Revenues$875,000
Cost of goods sold 625,000
Gross profit$250,000
Selling and administrative expenses 140,000
Operating income$110,000
Calculate the markup on cost of goods sold (COGS) that will maintain the same profit as last year.

Answer 1

The markup on cost of goods sold (COGS) for Auburn Company to maintain the same profit as last year is 40%.

Step-by-step explanation:

To calculate the markup on cost of goods sold (COGS) for the Auburn Company to maintain the same profit as last year, we can use the provided financial information. The company's revenues were $875,000, and the COGS was $625,000, leading to a gross profit of $250,000. The operating income was $110,000 after deducting selling and administrative expenses of $140,000. The markup on COGS can be calculated using the formula:

Markup on COGS = (Selling Price - COGS) / COGS

We know the gross profit, which is the difference between revenues (selling price) and COGS. Therefore:

Markup on COGS = ($250,000 / $625,000) = 0.4 or 40%

To maintain the same profit, Auburn Company has to achieve a 40% markup on its cost of goods sold.