Question

Swank Clothiers had sales of $423,000 and cost of goods sold off $320,000. What is the gross profit margin (ratio of gross profit to sales)? Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. If the average firm in the clothing industry had a gross profit of 35 percent, how is the firm doing?

Answer 1

The gross profit is calculated as the difference between the sales revenue and the cost of goods sold:

Gross profit = Sales revenue - Cost of goods sold

Gross profit = $423,000 - $320,000

Gross profit = $103,000

The gross profit margin is the ratio of gross profit to sales, expressed as a percentage:

Gross profit margin = (Gross profit / Sales revenue) x 100%

Gross profit margin = ($103,000 / $423,000) x 100%

Gross profit margin = 24.36%

The gross profit margin of Swank Clothiers is 24.36%.

If the average firm in the clothing industry had a gross profit margin of 35%, then Swank Clothiers is performing below the industry average.