Question

A company earns a gross profit of 20% on cost. Its credit revenue from operations are twice its cash revenue from operations. If credit revenue from opaertuons is 400000 calculate the gross profit ratio of the company

Answer 1

Credit sales = 400000

Gross profit = 20% on Cost

Credit sales = 2 (cash sales)

…Cash sales = 200000

Total sales = Cash sale + Credit sale

= 200000 + 400000

= 600000

Let cost = 100, Profit = 20

…Sale = 120

Hence, when sale = 120, cost = 100

Sales = 600000, Cost = 100/120 x 600000 = 500000

Gross profit ratio = (Gross profit/Net sales) x 100 = 100000/600000 x 100

= 16.6%

Gross profit = Sales - Cost

= 600000 - 500000

= 100000

Answer 2

The Gross Profit Ratio of the company will be 16.66 %.

Explanation:

A company earns a Gross Profit of 20% on Cost.

★ Gross Profit Ratio : 

• Gross Profit Ratio = (Gross Profit / Revenue from Operations) × 100

• Revenue from Operations = Credit Revenue from Operations + Cash Revenue From Operations

= 4,00,000 + (4,00,000/2)

= 4,00,000 + 2,00,000

= 6,00,000

Revenue from Operations = 6,00,000

• Revenue from Operations = Cost of Revenue from Operations + Gross Profit

Let,

Cost of Revenue from Operations = x

So,

Revenue from Operations = Cost of Revenue from Operations + Gross Profit

⇒ 6,00,000 = x + 20% of x

⇒ 6,00,000 = x + 20x/100

⇒ 6,00,000 = x + 0.2x

⇒ 6,00,000 = 1.2x

⇒ x = 6,00,000/1.2

⇒ x = 5,00,000

Cost of Revenue from Operations = 5,00,000

Gross Profit of 20% on Cost :

⇒ 5,00,000 × 20/100

⇒ 1,00,000

Gross Profit = 1,00,000

★ Gross Profit Ratio :

Gross Profit Ratio = (Gross Profit / Revenue from Operations) × 100

⇒ (1,00,000/6,00,000) × 100

⇒ 16.66

Gross Profit Ratio = 16.66 %

Therefore, the Gross Profit Ratio of the company will be 16.66 %.