Question

# Base question 25 on the following information: 2018 2019 2020 Revenue 800 856 899 COGS 500...

Base question 25 on the following information:

2018 2019 2020

Revenue 800 856 899

COGS 500

Gross Profit 300

**Assume that 2018, \$300 of COGS was variable and \$200 was fixed**

25.) Assuming revenue growth was driven by 5% volume and 2% price in 2019, what is the gross profit in 2019? Show your work.

We have given Revenue of 2018 - 800

Now, The Sales growth and Price growth are 5% and 2% respectively

So, Sales Growth in 2019 = Sales in 2018 * ( 1 + Sales Growth + Price growth)

= 800 * ( 1 + 5% + 2%)

= 800* ( 1+ 7%)

= 800 * 1.07

= 856

Now, In Cost of Goods Sold we have given 60% Variable and 40% Fixed

Fixed Cost = 300 / 500 (60%)and Variable cost = 200 / 500 (40%)

So, The Variable Cost will change by the increase in Sales or revenue and the fixed cost will remain same as it doesn't change with the rise or fall in revenue

So, Variable Cost in 2019 = Variable Cost in 2018 * ( 1 + Sales Growth + Price growth)

= 300 * ( 1 + 5% + 2%)

= \$321

Fixed cost will remain same in 2019 = \$200

Total Cost = \$321 + \$200

= \$521

So, Gross profit = Revenue - Cost of goods sold

= \$856 - \$521

= \$335

The Gross profit for the year 2019 is \$335.

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