Question

Metlock, Inc. operates a retail operation that purchases and sells snowmobiles, among other outdoor products. The company purchases all inventory on credit and uses a periodic inventory system. The Accounts Payable account is used for recording inventory purchases only; all other current liabilities are accrued in separate accounts. You are provided with the following selected information for the fiscal years 2020 through 2023, inclusive.

2015 2016 2017 2018
Income Statement Data
Sales revenue $131,770 (e) $111,819
Cost of goods sold (a) 38,162 36,026
Gross profit 92,208 81,083 (i)
Operating expenses 86,550 (f) 71,903
Net income (b) $4,774 (j)
Balance Sheet Data
Inventory $17,680 (c) $19,992 (k)
Accounts payable 7,888 8,840 6,256 (l)
Additional Information
Purchases of inventory on account 35,210 (g) $32,708
Cash payments to suppliers (d) (h) 33,524

Required:
Compute the gross profit rate and the profit margin for each fiscal year.

Answer 1

Metlock, Inc.

2020 2021 2022

Gross profit rate = 70% 68% 68%

Profit margin = $5,658 $4,774 $3,890

Percentage margin 4.3% 4% 3.5%

Step-by-step explanation:

a) Data and Calculations:

2020 2021 2022 2023

Income Statement Data

Sales revenue $131,770 (e) $111,819

Cost of goods sold (a) 38,162 36,026

Gross profit 92,208 81,083 (i)

Operating expenses 86,550 (f) 71,903

Net income (b) $4,774 (j)

Balance Sheet Data

Inventory $17,680 (c) $19,992 (k)

Accounts payable 7,888 8,840 6,256

Additional information:

Purchases of inventory

on account 35,210 (g) $32,708

Cash payments to

suppliers (d) (h) 33,524

2020 2021 2022 2023

Income Statement Data

Sales revenue $131,770 119,245 $111,819

Cost of goods sold 39,562 38,162 36,026

Gross profit 92,208 81,083 75,793

Operating expenses 86,550 76,309 71,903

Net income $5,658 $4,774 $3,890

Balance Sheet Data

Inventory $17,680 (c) $19,992 (k)

Accounts payable 7,888 8,840 6,256

Additional information:

Purchases of inventory

on account 35,210 (g) $32,708

Cash payments to

suppliers 27,322 (h) 33,524

a) = $131,770 - $92,208 = $39,562

b) = $92,208 - 86,550 = $5,658

c) =

d) = $35,210 - 7,888 = $27,322

e) = $38,162 + 81,083 = $119,245

f = $81,083 - 4,774 = $76,309

i) = $111,819 - 36,036 = $75,793

j) = $75,793 - 71,903 = $3,890

2020 2021 2022

Gross profit rate = Gross profit/Sales * 100

Gross profit 92,208 81,083 75,793

Sales revenue $131,770 119,245 $111,819

Gross profit rate = 70% 68% 68%

Profit margin = $5,658 $4,774 $3,890

Percentage margin = Net Income/Sales * 100

4.3% 4% 3.5%