How to work out gross profit margin
Gross profit margin shows how much of each £1 of sales is left after the cost of the goods. Work it out and read what it says.
In this room: 2 tasks, 7 questions
- Gross profit and the margin4 questions
- This year against last year3 questions
Gross profit is sales less cost of sales. Cost of sales is what the goods that were sold cost the business to buy or make.
Gross profit margin is gross profit as a percentage of sales: gross profit ÷ sales × 100.
| Item | £ |
|---|---|
| Sales | 400,000.00 |
| Cost of sales | (240,000.00) |
| Gross profit | ? |
Answer the questions below
3 more questions follow in this task.
One margin on its own says little. Compare it with last year, or with a similar business.
| Item | Last year | This year |
|---|---|---|
| Sales | 300,000.00 | 400,000.00 |
| Cost of sales | (165,000.00) | (240,000.00) |
| Gross profit | 135,000.00 | 160,000.00 |
The gross margin falls when the goods cost more or sell for less. The usual causes are:
- Suppliers raise their prices and the business does not raise its own
- More goods are sold at a discount
- More of the sales come from lines with a thin margin
Answer the questions below
2 more questions follow in this task.