Question

What are the factors that go into the calculation of Gross Profit? How can shifts in the areas needed for the calculation impact Gross Profit?

Answer 1

Factors that affect calculation of Gross profit are:

1. Sale Price
2. Sales Amount
3. Cost of Goods Sold
4. Inventory Policy

Shifts in the factors affect Gross Profit
1. Higher the sales profit more is the gross profit, lower the sales price lower is the gross profit.
2. Higher the sales volume higher the gross profit and vice versa.
3. Higher COGS lower is gross profit and lower COGS higher gross profit.
4. Inventory policy of FIFO and LIFO also affect gross profit.

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