Question

Schrute Farm Sales buys portable generators for $460 and sells them for $720 He pays a sales commission of 5% of sales revenue to his sales staff. Mr. Schrute pays $2000 a month rent for his store, and also pays $1700 a month to his staff in addition to the commissions. Mr. Schrute sold 200 generators in June. If Mr. Schrute prepares a traditional income statement for the month of June, what would be his gross profit?

Answer 1

Schrute Farm:

Gross profit = Sales - Cost of goods sold

Cost of goods sold = Opening inventory + Purchases + Freight - Closing stock.

Sales = Units × Selling price

Sales = 200 generators × $ 720 per unit

Sales = $ 144,000

Cost of goods sold = Units × Purchase price (in this case)

Cost of goods sold = 200 generators × $ 460 per unit

Cost of goods sold = $ 92,000

Gross profit = 144,000 - 92,000

Gross profit = $ 52,000 of June

Sales commission, Rent of stores, and Staff salary not included in cost of goods sold.