Question
To estimate the difference in profitability of the two stores, we need to calculate their respective gross profit margins, which is the difference between their
To estimate the difference in profitability of the two stores, we need to calculate their respective gross profit margins, which is the difference between their sales revenue and cost of goods sold as a percentage of sales revenue. The gross profit margin indicates how much profit a company makes before deducting its operating expenses.
Gross profit margin for Store A:
Sales revenue = $200,000 Cost of goods sold = $150,000 Gross profit = $200,000 - $150,000 = $50,000 Gross profit margin = ($50,000 / $200,000) x 100% = 25%
Gross profit margin for Store B:
Sales revenue = $200,000 Cost of goods sold = $150,000 Gross profit = $200,000 - $150,000 = $50,000 Gross profit margin = ($50,000 / $200,000) x 100% = 25%
Since both stores have the same sales revenue and cost of goods sold, they have the same gross profit margin and therefore the same level of profitability. The difference in their normal inventory or stock of goods does not affect their profitability since it is not directly related to their sales revenue or cost of goods sold.
Therefore, we can estimate that the two stores have the same profitability and there is no significant difference between them.
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