Award Nominations

When managers need to ensure they make a certain gross profit on a product, they do so by using the following formula:

Gross Profit Margin = (Retail price-Cost price ) X 100%

 Retail price

For example, when selling a packet of potato chips that has a cost price of $1.00 and a retail price of $1.80

$1.80 – $1.00  x 100% = 44%

     $1.80

If you need to achieve a minimum Gross Profit Margin of say 44%-you cannot do this by simply multiplying the cost price by 44% and adding that to the cost price. This is a common mistake and using the example above you would get an incorrect result.

$1.00 + 44% =$1.44

If we use the proper calculation we can see that this only represents a Gross Profit Margin of 30.5%

$1.44 – $1.00  x 100% =30.5%

       $1.44