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.

Answer 1

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

Profit & Loss Statement - Steel Company - Year 3
Particulars	Details	Amount
Sales (12500*$375)		$4,687,500.00
Cost of goods sold:
Purchase cost of steel (20000*$275)	$5,500,000.00
Less: Ending inventory (7500*$275)	$2,062,500.00	$3,437,500.00
Gross Profit		$1,250,000.00
Operating expenses:
Warehousing cost		$25,000.00
Marketing expenses		$15,000.00
Professional Service expense		$1,000.00
Pre Tax Profit		$1,209,000.00