Question

Background: Buzz Athletic Apparel annually sells 25,000 Georgia Tech branded cotton T-shirts through distributors who then sell the shirts for $18 to retailers like Dick’s Sporting Goods who then sell them on to consumers for $30 each. Buzz’s costs of goods are $6 per shirt and they are required to pay a licensing fee to Georgia Tech for $1 for every shirt that they sell via distributors. This fee is only charged on those shirts sold to the distributors. The distributors’ margins are 22%.

1. What is Buzz Athletic Apparel’s gross margin?

Answer 1

Given that the distributors margin is 22%. Margin= Profit/Sales= 22%. Profit/18=22%. Profit= $3.96(approx).

Therefore, Distributors cost of goods sold= $14.04(18-3.96) which is also the rate at which Buss Apparel sells to The distributors.

Now for Buzz Athletic

• Sale price= $14.04
• Cost of goods sold= $6
• Liscensing fee= $1 pr tshirt sold (Since fee is charged on those tshirts which are sold to distributors, therefore it will be included in cost of goods sold)
• Gross Margin= Sales-Cost of goods sold= (14.04-7)*25000= $176000

Answer: Buzz Athletic Gross Margin= $176000

answered by: anonymous