Fantastio Shop, Inc. has net saleg revenue of $1,100,000. The cost of goods sold is $440,000. is Fantastle Company’s gross prott porcontage nigher or iower than the industry average of 55% ? A. Fantartic Shop’s gross proli porcentage is 5% lower than the industry avorape. B. Fantastic Shop’s gross peofl percentage is 5% higher than the industry avemage C. Fantastic Bhop’s gross profit percentage is 10% hhghor than the industry average D. Fantastic Shopit gross profit percentage is 10 in lower than the industy average
The correct answer and explanation is:
To determine Fantastic Shop, Inc.’s gross profit percentage and compare it to the industry average, we first need to calculate their gross profit and then compute the gross profit percentage.
Step 1: Calculate Gross Profit
Gross profit is the difference between net sales revenue and the cost of goods sold (COGS). Gross Profit=Net Sales Revenue−Cost of Goods Sold (COGS)\text{Gross Profit} = \text{Net Sales Revenue} – \text{Cost of Goods Sold (COGS)} Gross Profit=1,100,000−440,000=660,000\text{Gross Profit} = 1,100,000 – 440,000 = 660,000
Step 2: Calculate Gross Profit Percentage
The gross profit percentage is calculated using the formula: Gross Profit Percentage=(Gross ProfitNet Sales Revenue)×100\text{Gross Profit Percentage} = \left( \frac{\text{Gross Profit}}{\text{Net Sales Revenue}} \right) \times 100 Gross Profit Percentage=(660,0001,100,000)×100=60%\text{Gross Profit Percentage} = \left( \frac{660,000}{1,100,000} \right) \times 100 = 60\%
Step 3: Compare to Industry Average
The industry average gross profit percentage is 55%. Therefore, the gross profit percentage of Fantastic Shop (60%) is higher than the industry average by: 60%−55%=5%60\% – 55\% = 5\%
Conclusion
The correct answer is: B. Fantastic Shop’s gross profit percentage is 5% higher than the industry average.
Explanation
Fantastic Shop’s gross profit percentage is calculated to be 60%, which is 5% higher than the industry average of 55%. This indicates that Fantastic Shop is more efficient in generating profit from its sales compared to the average company in the industry. A higher gross profit percentage generally suggests that a company is managing its costs better, perhaps by negotiating lower costs for goods sold or effectively setting sales prices. However, it is important to analyze other factors (like operating expenses, net profit, and industry trends) before drawing further conclusions about the company’s overall profitability.