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Hello tutor, for the answer of the q1 in Dec 2008 Pce Company(PC),I wonder how to get the figure for gross profit in 2011 and 2012 by using their method.
“2011 (40-5)/100(0.95)=36.8421052%
2012 (40-5-4.75)/(100(0.95)(0.95))=33.5180055%”I don’t understand what they are doing, I hope Tutor will help me to clarify this,Thank you so much 🙂
In the earlier years the GP was 40%, so for every $100 revenue the profit was $40 and the cost was therefore $60.
If the selling price falls by 5% and the cost remains the same, then the same item would sell for $95, the cost would still be $60 and therefore the profit would be $35.
Therefore the profit now becomes 35/95 times the revenue. 35/95 = 36.8421052%.
However, as the examiner has written in his answer, you don’t have to do it this way. You can calculate the revenue and the costs separately and still get the same end result.
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