Question

What is gross profit and why is it important to a merchandising company?

Answer 1

Gross Profit is profit earned oevr the cost of goods sold. It is also called as gross margin. It can be calculated as per below:

Gross Profit = Revenues - Cost of goods sold

It is important to a merchandising company as it identifies a company's efficiency in using its labor in trading for goods or services. It does not include the costs of general and administration and selling expenses or operating costs. For a merchandising company, cost of goods sold covers the major portion of costs. So, gross profit in a merchandising company will cover the most part of profit earned trading the goods.