Question

a. Swank Clothiers had sales of \(383,000 and cost of goods sold of \)260,000. What is the gross profit margin (ratio of gross profit to sales)?

b. If the average firm in the clothing industry had a gross profit of 25 percent,

how is the firm doing?

Short answer

a. The gross profit margin of the Swank clothier is 32.10%.

b. If the industry gross profit is 25%, the company will do better than the industry.

Step-by-step solution

Calculation of gross profit

$$\begin{gathered} Grossprofit=Sales-Costsofgoodssold \\ =\$383,000-\$260,000 \\ =\$123,000 \end{gathered}$$

Calculation of gross profit margin

$$\begin{gathered} Grossprofitmargin=\frac{GrossProfit}{Sales} \\ =\frac{\$123,000}{\$383,000} \\ =0.321 \end{gathered}$$

Explanation for the second part

If the average firm in the clothing industry had a gross profit of 25 percent and a gross profit of 32.1 percent, the firm would do better because the firm is earning more than the industry.