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ACCA Applied Knowledge · Financial Accounting · Importance and purpose of analysis of financial statements

A company reported revenue of $800,000 and cost of sales of $520,000 for the year just ended. In a common-size statement of profit or loss with revenue as the base of 100%, what percentage is gross profit?

Gross profit is $280,000 (800,000 less 520,000). Dividing by revenue of $800,000 gives 35.0% in the common-size statement. The 65.0% figure is the cost of sales percentage, not gross profit.

  1. A35.0%Correct
  2. B65.0%
  3. C54.0%
  4. D28.6%

Explanation

Gross profit = 800,000 - 520,000 = 280,000. As a percentage of revenue: 280,000/800,000 = 35.0%. The 65.0% figure is the cost of sales percentage (520/800), a confusion between cost and profit. The 28.6% figure wrongly uses 280/980 or a wrong base.

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