Question

Nelson Hardware ordered a shipment of gas barbecues at a suggested retail price of $459 less trade discounts of 25% and 10%. The manager intends to sell the barbecues at the suggested retail price. If overhead expenses are 20% of the selling price.

a) What will be the unit operating profit?

b) What is the rate of markup (on cost)?

c) What is the gross profit margin?

d) What would be the break-even selling price for an inventory clearance sale?

Answer 1

Ans:

1. Unit Operating Cost= Retail price- Cost

Retail price= $459

Cost= Overhead Expense+ Cost(After Discount)

=> 20% of $459+ $459*75/100*90/100

=> 91.80+ 309.83

=> $401.63

Unit operating Cost= 459-401.63

=> $57.37

2. Markup(on Cost)= retail price- Cost/cost*100

=> 459-401.63/401.63*100

=> 57.37/401.63*100

=> 14.28%

3. Gross profit margin= gross Profit/Sale*100

=> 57.63/459*100

=> 12.55%

4. Break-even Selling price for clearance Sale= No profit no loss

=> $401.63