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Chapter 2: 2-3BP (page 48)

a. Swank Clothiers had sales of \(383,000 and cost of goods sold of \)260,000. What is the gross profit margin (ratio of gross profit to sales)?

b. If the average firm in the clothing industry had a gross profit of 25 percent,how is the firm doing?

Short Answer

Expert verified

a. The gross profit margin of the Swank clothier is 32.10%.

b. If the industry gross profit is 25%, the company will do better than the industry.

Step by step solution

01

Calculation of gross profit 

Grossprofit=Sales-Costsofgoodssold=$383,000-$260,000=$123,000

02

Calculation of gross profit margin

Grossprofitmargin=GrossProfitSales=$123,000$383,000=0.321

03

Explanation for the second part

If the average firm in the clothing industry had a gross profit of 25 percent and a gross profit of 32.1 percent, the firm would do better because the firm is earning more than the industry.

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Most popular questions from this chapter

Dr. Zhiva虁go Diagnostics Corp.鈥檚 income statement for 20X1 is as follows:

Sales\( 2790000
Cost of goods sold1790000
Gross Profits\)1000000
Selling and administrative expenses302000
Operating profits\(698000
Interest Expense54800
Income before taxes\)643200
Taxes30%192960
Income after-tax$ 450240

Compute the profit margin for 20X1.

Given the following information, prepare an income statement for the Dental Drilling Company.

Selling and administrative expenses

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Depreciation expenses

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Taxes

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Explain why the statement of cash flows provides useful information that goes beyond income statement and balance sheet data.

International Data Systems鈥� information on revenue and costs is relevant only up to a sales volume of 105,000 units. After 105,000 units, the market becomes saturated and the price per unit falls from \(14.00 to \)8.80. Also, there are cost overruns at a production volume of over 105,000 units, and variable cost per unit goes up from \(7.00 to \)8.00. Fixed costs remain the same at $55,000.

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Mansfield Corporation had 20X1 sales of \(100 million. The balance sheet items that vary directly with sales and the profit margin are as follows:

Percent

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Accounts receivable

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Accounts payable

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Accruals

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a. How much additional external capital will be required for next year if sales

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