Q5-6TI - Horngren'S Financial And Managerial Accounting

Question

Capital City Motorcycle’s selected accounts as of December 31, 2018, follow:

Selling Expenses                                                                $ 10,500 

Interest Revenue                                                                      1,000 

Net Sales Revenue                                                               113,500 

Cost of Goods Sold                                                               85,000 

Administrative Expenses                                                         8,000

Determine the gross profit percentage for the year ended December 31, 2018.

Step-by-Step Solution

Answer

The gross profit percentage of the company is 25.11%.

Meaning of Gross Profit

Gross profit refers to the profit left with the company after making the settlement of all the costs and expenses associated with the manufacturing and sale of a product from its net sales revenue. 

Computation of gross profit percentage

$$\begin{gathered} \text{Gross profit percentage}=\frac{\text{Net sales revenue}-\text{Cost of goods sold}}{\text{Net sales}}\times 100 \\ =\frac{\$113,500-\$85,000}{\$113,500}\times 100 \\ =\frac{\$28,500}{\$113,500}\times 100 \\ =25.11\% \end{gathered}$$