Question

A manufacturer reports sales of $100,000 and cost of goods sold of $75,000.

1. Compute its gross profit ratio.
2. If competitors average a 10% gross profit ratio, does this manufacturer compare favorably or unfavorably to its peers?

Answer 1

The gross profit ratio can be calculated by dividing the gross profit by the sales revenue and multiplying by 100. If the manufacturer's gross profit ratio is higher than the average of its peers, it can be said that the manufacturer compares favorably to its peers.

Step-by-step explanation:

The gross profit ratio is calculated by dividing the gross profit by the sales revenue and multiplying by 100. In this case, the manufacturer's gross profit is $100,000 - $75,000 = $25,000. The gross profit ratio is ($25,000 / $100,000) * 100 = 25%.

To determine if the manufacturer compares favorably or unfavorably to its peers who have an average gross profit ratio of 10%, we can compare their gross profit ratios. Since the manufacturer's gross profit ratio is 25%, which is higher than the average of 10%, it can be said that the manufacturer compares favorably to its peers.

Answer 2

The gross profit ratio of the manufacturer is 25%, which means it compares favorably to its competitors.

Step-by-step explanation:

To compute the gross profit ratio, you divide the gross profit by the sales revenue and multiply by 100. In this case, the gross profit is $100,000 - $75,000 = $25,000.

So, the gross profit ratio is ($25,000 / $100,000) * 100 = 25%.

Since the manufacturer's gross profit ratio is 25%, which is higher than the competitors' average of 10%, the manufacturer compares favorably to its peers.