Gross Profi t for a Merchandiser Emblems For You sells specialty sweatshirts. The purchase price is $10 per unit plus 10%

tax and a shipping cost of 50¢ per unit. When the units arrive, they must be labeled, at an additional cost of 75¢ per unit. Emblems purchased, received, and labeled 1,500 units, of which 750 units were sold during the month for $20 each. The controller has prepared the following income statement:

Sales $15,000 Cost of sales ($11  750) 8,250 Gross profi t $ 6,750 Shipping expense 750 Labeling expense 1,125 Net income $ 4,875 Emblems is aware that a gross profi t of 40% is standard for the industry. The marketing manager believes that Emblems should lower the price because the gross profi t is higher than the industry average.

Required 1. Calculate Emblems’ gross profi t ratio.

2. Explain why Emblems should or should not lower its selling price.

AppendixLO1