Compute Gross Profit Ratio from the following information: Revenue from Operations, i.e., Net Sales : Rs. 4,00,000; Gross Profit 25% on Cost.

SOLUTION

Gross Profit 25% on Cost.
Let Cost = x
Gross Profit = x × 25 / 100
= 25x / 100

Sales = Cost + Gross Profit
4,00,000 = x+ 25x / 100
Or, 4,00,000 = 125x / 100
Or, x = 4,00,000 × 100 / 125
= 3,20,000

Cost = x = Rs. 3,20,000
Gross profit = Sales – Cost
Gross profit ratio = Gross profit / Net Sales × 100
= 80,000 × 100 / 4,00,000
= 20%