Del is a sole trader selling toys from a chain of 18 retail shops.Shortly after Christmas, he is comparing his business's performance in December with that of the leading toy retailers.Recently published statistics show that the leading retailers made 26.2% gross profit and 9.8% net profit in the month. Del's opening inventory was £4 200 200 and closing inventory was £1 230 400.He purchased inventory valued at £17 206 300 during December and his revenue was £26 500 000.
On the basis of his actual cost of sales in December, what would Del's revenue have been, to the nearest £, if he had achieved the same gross profit margin as that of the leading toy retailers?

Question

Quizplus · Accepted Answer

To calculate Del's revenue with the same gross profit margin as the leading toy retailers, first, we need to find Del's cost of sales and then apply the gross profit margin to find the target revenue.1. Calculate Del's cost of sales:Cost of Sales = Opening Inventory + Purchases - Closing Inventory= £4,200,200 + £17,206,300 - £1,230,400= £20,176,1002. Calculate the target revenue using the leading retailers' gross profit margin of 26.2%:Gross Profit Margin = Gross Profit / RevenueLet X be the target revenue. Then, the cost of sales (as calculated) would represent (100% - 26.2%) of X, because Gross Profit + Cost of Sales = Revenue.So, £20,176,100 = 73.8% of XX = £20,176,100 / 0.738= £27,338,888 (rounded to the nearest £)Therefore, Del's revenue would have been £27,338,888 to achieve the same gross profit margin as the leading toy retailers.

Del Is a Sole Trader Selling Toys from a Chain