Jane Doe\'s Travel is a retail store for those customers who prefer travelling w

Question

Jane Doe's Travel is a retail store for those customers who prefer travelling with high quality luggage and travel accessories. Last year its net sales totaled $120,500. The cost value of the items sold was $72,300. Taxes for the year were $7,680. The only expenses that the operation had were (1) rent for $200, (2) salaries to the owner and one part-time assistant for $22,000, (3) administrative expenses of $200, and (4) utilities at $1,300.

1) Calculate the gross margin.

2) Calculate the net profit before tax.

3) Calculate the net profit margin for John's luggage.

Explanation / Answer

Part 1)

Gross profit margin = Gross Profit/Net Sales

Gross Profit = Net Sales – Cost of Goods Sold = $120,500 - $72,300 = $48,200

Gross Margin = $48,200/$120,500 = 40%

Part 2)

Net Profit before Tax = Gross Profit – Other Operational and Admin Expenses

Net Profit before Tax = $48,200 - $200 - $22,000 - $200 - $1,300 = $24,500

Part 3) Net profit Margin = Net Income/Net Sales

Net Income = Net profit before tax – Taxes = $24,500 - $7,680 = $16,820

Net profit margin = $16,820/$120,500 = 13.96%

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