Question

From the following information calculate ‘Gross Profit Ratio’:
\[ \begin{array}{|l|r|} \hline \text{Revenue from operations} & ₹ 10,00,000 \\ \text{Purchases} & ₹ 3,00,000 \\ \text{Carriage inwards} & ₹ 60,000 \\ \text{Salaries} & ₹ 1,18,000 \\ \text{Decrease in inventory} & ₹ 40,000 \\ \text{Returns outwards} & ₹ 20,000 \\ \text{Wages} & ₹ 50,000 \\ \hline \end{array} \]

Hint:

Gross Profit Ratio is calculated by dividing Gross Profit by Revenue from Operations and multiplying by 100 to express it as a percentage.

Answer 1

To determine the Gross Profit Ratio, calculate Gross Profit first using the formula: \[\text{Gross Profit} = \text{Revenue from operations} - \text{Cost of Goods Sold (COGS)}\] COGS is computed as: \[\text{COGS} = \text{Purchases} + \text{Carriage inwards} + \text{Decrease in inventory} - \text{Returns outwards}\] Using the given values: \[\text{COGS} = 3,00,000 + 60,000 + 40,000 - 20,000 = 3,80,000\] Subsequently, Gross Profit is: \[\text{Gross Profit} = 10,00,000 - 3,80,000 = 6,20,000\] The Gross Profit Ratio is then calculated as: \[\text{Gross Profit Ratio} = \frac{\text{Gross Profit}}{\text{Revenue from operations}} \times 100 = \frac{6,20,000}{10,00,000} \times 100 = 62\%\] Therefore, the Gross Profit Ratio is 62%.