Question

A retailer with annual net sales of $2 million maintains a markup of 66.67% based on cost. Operating expenses average 35%. What are the retailer's gross margin and net profit in dollars? [Hint: A Markup on Cost is equivalent to what Gross Profit Margin percentage?]

Answer 1

Sale price = cost + markup

Let us say the cost is 100.

Then, sale price = 100 + (100 * 66.67%) = 166.67

gross margin % = (sale price - cost) / sale price

gross margin % = (166.67 - 100) / 166.67

gross margin % = 66.67 / 166.67

gross margin % = 40%

Retailers' gross margin = annual net sales * gross margin %

Retailers' gross margin = $2,000,000 * 40%

Retailers' gross margin = $800,000

Net profit = retailers' gross margin - operating expenses

Net profit = $800,000 - ($2,000,000 * 35%)

Net profit = $100,000