Q12SE - Horngren'S Financial And Managerial Accounting

Question

Macarthy Landscape Supply’s selected accounts as of December 31, 2018, follow. Compute the gross profit percentage for 2018.

Selling Expenses                                                                                       $ 12,900 

Interest Revenue                                                                                        900 

Net Sales Revenue                                                                                    134,700 

Cost of Goods Sold                                                                                   114,000 

Administrative Expenses                                                                         10,200

Step-by-Step Solution

Answer

Answer

The gross profit percentage of the company is 15.36%. 

Step 1: Meaning of Gross Profit

In accounting, the term gross profit refers to the amount of profit left with the company after making payment of all direct and indirect expenses associated with the production of the goods or services. 

Step 2: Computation of gross profit

$\begin{array}{rcl}\mathrm{Gross} \mathrm{Profit}& =& \mathrm{Net} \mathrm{sales}-\mathrm{Cost} \mathrm{of} \mathrm{goods} \mathrm{sold}\\ & =& \$134,700-\$114,000\\ & =& \$20,700\end{array}$

Step 3: Computation of gross profit percentage

$\begin{array}{rcl}\mathrm{Gross} \mathrm{profit} \mathrm{percentage}& =& \frac{\mathrm{Gross} \mathrm{profit}}{\mathrm{Net} \mathrm{sales} \mathrm{revenue}}\times 100\\ & =& \frac{\$20,700}{\$134,700}\times 100\\ & =& 15.36\%\end{array}$