Question

Nick's Sports Dream reported $160,000 in net sales at the end of year one, and cost of goods sold totaled 25% of net sales. There was a 10% increase in gross margin at the end of year two. What was the gross margin at the end of year two?

Answer 1

The gross margin for Nick's Sports Dream at the end of year two is $132,000, resulting from a 10% increase on the year one gross margin which was calculated as 75% of net sales.

Step-by-step explanation:

The question involves calculating the gross margin for Nick's Sports Dream at the end of year two after a known increase. To start, we first determine the gross margin at the end of year one by subtracting the cost of goods sold (COGS) from net sales.

The COGS is 25% of net sales, so the gross margin for year one is 100% - 25% = 75% of net sales. Now, to find the actual dollar amount for the gross margin, we calculate 75% of $160,000, which equals $120,000.

Next, we're told there was a 10% increase in the gross margin at the end of year two. To calculate a 10% increase, we take the year one gross margin ($120,000) and increase it by 10%, so we have $120,000 + ($120,000 * 0.10) = $120,000 + $12,000 = $132,000. Therefore, the gross margin at the end of year two is $132,000.