Final answer:
The gross profit percentage is usually expressed as a percentage of sales. It is calculated by subtracting the cost of goods sold from total revenue, then dividing the result by total revenue and multiplying by 100.
Step-by-step explanation:
In most situations, the gross profit percentage is stated as a percentage of sales. Gross profit percentage measures the efficiency with which a company uses its resources to produce goods and reflects the relationship between revenue and costs of goods sold. It's an important metric in evaluating a company's financial health and operational performance.
The formula for calculating gross profit percentage is:
Gross Profit Percentage = (Total Revenue - Cost of Goods Sold) / Total Revenue × 100
Let's consider an example. The firm had total sales revenue of $1 million and the costs related to generating this revenue were as follows: $600,000 on labor, $150,000 on capital, and $200,000 on materials. The accounting profit would be calculated:
Accounting Profit = Total Revenue - Total Cost
Accounting Profit = $1 million - ($600,000 + $150,000 + $200,000)
Accounting Profit = $50,000