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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Gross Profit Percentage An accountant sometimes must convert gross profit as a percent of cost of goods sold to gross profit as a percent of sales before the gross profit method can be applied.

Required:

Convert the following gross profit percentages based on the cost of goods sold to gross profit as a percentage of net sales:

  1. 1. 20%
  2. 2. 25%
  3. 3. 40%

1.

To determine

Change the given gross profit percentage (20%) based on the cost of goods sold to gross profit as a percentage of net sales.

Explanation

Gross Profit Percentage: The difference between sales and cost of goods sold is called as gross profit. The financial ratio which estimates gross profit to net sales revenue in terms of percentage is known as gross profit percentage.

The following is the formula to calculate the gross profit percentage:

  Gross profit percentage = Net sales – Cost of goods sold (Gross profit)Net sales×100

The following is the formula to calculate the gross profit on net sales:

  Gross profit on net sales = Gross profit on cost of goods sold1+Gross profit 

2.

To determine

Change the given gross profit percentage (25%) based on the cost of goods sold to gross profit as a percentage of net sales.

3.

To determine

Change the given gross profit percentage (40%) based on the cost of goods sold to gross profit as a percentage of net sales.

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