What is the cost of goods sold if the net sales is $1,200,000 and the gross profit ratio is 0.2

Answer 1

Hi Minato,

The formula for the *gross profit ratio* is:

Gross Profit Ratio = Gross Profit / Net Sales

Let's use all the information we already have, plug them into the formula, and solve for the unknown variable:

0.20 = Gross Profit / $1,200,000.

$1,200,000 x 0.20 = Gross Profit

$240,000 = Gross Profit

Since we're trying to figure out cost of goods sold (COGS), let's think of another profit-related formula that includes COGS... this would be the formula for calculating gross profit, which is:

Gross Profit = Net Sales - COGS.

We know the amount of net sales and we've calculated gross profit, so we can plug in these numbers and solve for COGS:

$240,000 = $1,200,000 - COGS

COGS + $240,000 = $1,200,000

COGS = $1,200,000 - $240,000

COGS = 960,000