Gross Profit & Mark-Up

Question 1

Gross Profit Margin Example:
A business has a gross profit of £6,000 on sales of £10,000. What is the gross profit margin?

Answer 1

1. Use the formula:
   GrossProfitMargin = (GrossProfit/Revenue) × 100
   GrossProfitMargin=
   Revenue
   GrossProfit
   ​
2. Substitute values:
   (6,000/10,000) × 100 = 60%

Answer: The gross profit margin is 60%, meaning for every £1 in sales, 60p is gross profit.

Question 2

Mark-Up Example:
A business has a gross profit of £20,000 and cost of sales of £80,000. What is the mark-up?

Answer 2

1. Use the formula:
   Mark-up = (GrossProfit/CostofSales) × 100
2. Substitute values: Mark-up = (20,000/80,000) x 100 = 25%

Answer: The mark-up is 25%, meaning the business adds 25% to the cost to determine the selling price.

Question 3

Now Try This:
Jak spent £100,000 on stock over the course of the year. His sales revenue was £500,000. Unfortunately, one product line was faulty, and he had to refund £50,000. Calculate Jak’s gross profit margin.

Answer 3

1. Adjust the sales revenue:

Adjusted revenue = 500,000 - 50,000 = 450,000

2. Calculate gross profit:
   GrossProfit = 450,000 - 100,000 = 350,000
3. Use the formula: GrossProfitMargin = Gross Profit Margin = (Gross Profit/Revenue) x 100 = (350,000/450,000) x 100 = 77.78%

Jak’s gross profit margin is 77.78%.

Question 4

Now Try This (Question 2):
A business has sales of £96,000 and shows a profit of £12,000. Calculate the mark-up.

Answer 4

1. Use the formula: Mark-up = (gross profit/cost of sales) x 100
2. Find cost of sales: Cost of sales = sales revenue - gross profit = 96,000 - 12,000 = 84,000
3. Substitute values: Mark-up = (12,000 / 84,000) x 100 = 14.29%

The mark-up is 14.29%.