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Hi Can you please explain why we used 40/60 to calculate the profit margin and not 40/100 please?
Example 3
Two joint products A and B are produced in a process. Data for the process for the last period are as follows:
Product. A. b
Tonnes. TonnesSales. 480. 320
Production. 600. 400Common production costs in the period were $12,000. There was no opening inventory. Both products had a gross profit margin of 40%. Common production costs were apportioned on a physical basis.
What was the gross profit for product A in the period?
A $2,304
B $2,880
C $3,840
D $4,800The correct answer is C.
To get the correct answer candidates had to negotiate three steps:
(i) calculate the amount of cost apportioned to product A ($12,000 x 600/(600 + 400) = $7,200)
(ii) then calculate how much of this cost is to be charged against A’s sales in the period ($7,200 x 480/600= $5,760)
(iii) then calculate the gross profit earned using the gross profit margin given ($5,760 x 40/60 = $3,840).In future you must ask in the Ask the Tutor Forum if you wish for me to answer – this forum is for students to help each other.
The gross profit margin is 40% and therefore for every $100 sales, the profit is $40.
Therefore for every $100 sales, the cost is 100 – 40 = $60.
So…for every $60 cost the profit will be $40.
For a cost of 5760, the profit will be 40/60 x 5760.
Im really sorry I haven’t noticed I posted the question here. Thank you so much it was very helpful
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