Question

Exercise 5-08 c (Essay) Financial information for two companies are presented below. Yoste Company Noone Company $90,000 $105,000 Sales revenue Sales returns and allowances 6,000 5,000 100,000 84,000 Net sales 58,000 60,000 Cost of goods sold 26,000 40,000 Gross profit 14,380 23,000 Operating expenses 11,620 17,000 Net income Yoste Company Noone Company Profit margin 14% 17% 40% Gross profit rate 31% (c) Discuss your findings in the calculation of profit margin and the gross profit rate for each company Click if you would like to Show Work for this question: Open Show Work

Answer 1

Solution:

1) Profit Margin: (Net Income / Net Sales) *100

Yoste Company = ($11,620 / $84000) *100= 13.83 % (Approx 14%)

Noone Company = ($17,000 / $100,000) *100= 17%

2) Gross Profit Rate: (Gross Profit / Net Sales) * 100

Yoste Company = ($26,000 / $84000) * 100 = 30.95% (Approx 31%)

Noone Company = ($40,000 / $100,000) * 100 = 40%

Note:

1) The profit margin and gross profit rate given in the question are correct

2) Sales means net sales after deducting sales returns and allowance. so that is why we have taken net sales instead of sales revenue to arrive at answer.