Assignment 7 Pricing and Profit Jack was in the purchasing department at SteelCo
ID: 2525754 • Letter: A
Question
Assignment 7 Pricing and Profit
Jack was in the purchasing department at SteelCo, a steel fabricator in Newark, NJ. After discovering that he could buy raw steel billets only from the West Coast, he decided to open a local steel distributor in Newark. Jack purchased $100,000 of inventory and decided his price “mark-up” would be 25 %. He sold the entire inventory.
What was Jack’s gross profit?
What was his gross profit margin (percentage)?
In Year 2, Jack purchased 1,500 tons of steel for $ 300 per ton. He sold 1,000 tons for $450 per ton; 300 tons for $400 and the remainder for $350 per ton
His direct cost included $5,000. for travel to Korea, $25,000 to ship the steel to Newark. Locally, he spent, $40,000 for marketing and sales costs.
Prepare a Profit & Loss Statement for the period that calculates pre-tax profit.
During Year 3 Jack imported 20,000 tons of steel from Korea at a unit cost of $275 each.
During that year, he sold 12,500 tons for $375 per ton.
His expenses included warehouse space for $25,000 and marketing expense of $15,000. He also paid a lawyer $1,000 for “professional services”
Prepare a Profit & Loss Statement for the period that calculates pre-tax profit.
Explanation / Answer
Solution :
Sale in year 1 = Cost + 25% markup = $100,000 + 25% of $100,000 = $125,000
Cost of inventory purchased = $100,000
Gross profit for year 1 = $125,000 - $100,000 = $25,000
Gross Margin percentage= $25,000 / $125,000 = 20%
Profit & Loss Statement - Steel Company - Year 2 Particulars Details Amount Sales (1000*$450 + 300 * $400 + 200*$350) $640,000.00 Cost of goods sold: Purchase cost of steel (1500*$300) $450,000.00 Freight inwards $25,000.00 $475,000.00 Gross Profit $165,000.00 Operating expenses: Travelling Expenses $5,000.00 Sales and marketing expenses $40,000.00 Pre Tax Profit $120,000.00