Question

Sock retailer wants to reexamine product profitability. Initial gross margin is $350,000. Socks generate slotting fees (paid by mfr.) of $50,000/yr. Warehouse costs are $10M/yr, of which socks use 1% of space. Store and distribution costs are $80,000. What is the adjusted gross margin, direct product costs, and DPP?

Answer 1

Adjusted Gross Margin

Particulars	Amount
Gross Margin	$          350,000
Slotting Fees	$           (50,000)
Warehouse Cost (1%*10m)	$         (100,000)
Store and Distribution Cost	$           (80,000)
Adjusted Gross Margin	$          120,000

Direct Product Costs

Particulars	Amount
Slotting Fees	$             50,000
Warehouse Cost (1%*10m)	$          100,000
Direct Product Cost	$          150,000

Direct Product Profitability

Particulars	Amount
Gross Margin	$          350,000
Direct Product Cost	$         (150,000)
Direct Product Profitability	$          200,000