You will use the

Module Two Merchandising for a Profit

Excel spreadsheet to complete this assignment.

Using the Excel spreadsheet, enter the correct formula for each question. Each question may require more than one response. The yellow boxes indicate a response is required.

Refer to the

Module Two Merchandising for a Profit Guidelines and Rubric

 document for directions on completing this assignment.

All calculations should be rounded to the nearest tenth. 

FMM 225 Module Two Merchandising for a Profit Guidelines and

Rubric

Overview: The true value of spreadsheets is that the formulas automatically calculate your answers without the need to recalculate data every time an input
number changes (which can be daily when selling merchandise). That is, once you set up the spreadsheet formulas, you can use the spreadsheet again and again,
build a new tab, or simply save it as a new document.

Prompt: For this assignment you will use Excel to calculate a variety of basic merchandising problems using formulas. Specifically, you must complete the
following:

1. Review the pertinent formulas from your resources.
2. Read each problem carefully from the “Problems” tab in the Module Two Merchandising for a Profit Excel document.
3. Complete each problem using formulas.

Rubric

Guidelines for Submission: Submit the completed Excel document. You will need to have the correct formulas in the cells. Number-only responses will not be
accepted for full credit.

Critical Elements Proficient (100%) Needs Improvement (55%) Not Evident (0%) Value

Return Percentages Calculation is correct and the work to
arrive at the answer is accurate

Calculation is partially correct Calculation is not accurate 6

Net Sales $ Calculation is correct and the work to
arrive at the answer is accurate

Calculation is partially correct Calculation is not accurate 6

Men’s Store

Calculations are correct and the work
to arrive at the answers is accurate

Calculations are partially correct Calculations are not accurate 9.5

Loungewear Department Calculations are correct and the work
to arrive at the answers is accurate

Calculations are partially correct Calculations are not accurate 9.5

Towel Department Net Sales Calculation is correct and the work to
arrive at the answer is accurate

Calculation is partially correct Calculation is not accurate 6

Shoes/Sneakers Net Sales Calculations are correct and the work
to arrive at the answers is accurate

Calculations are partially correct Calculations are not accurate 9.5

Total Billed Cost Calculations are correct and the work
to arrive at the answers is accurate

Calculations are partially correct Calculations are not accurate 9.5

Total Cost of Merchandise Calculation is correct and the work to
arrive at the answer is accurate

Calculation is partially correct Calculation is not accurate 6

Gross Margin Calculations are correct and the work
to arrive at the answers is accurate

Calculations are partially correct Calculations are not accurate 9.5

Total Expenses Calculations are correct and the work
to arrive at the answers is accurate

Calculations are partially correct Calculations are not accurate 9.5

Critical Elements Proficient (100%) Needs Improvement (55%) Not Evident (0%) Value

Comparison of Sales Calculations are correct and the work
to arrive at the answers is accurate

Calculations are partially correct Calculations are not accurate 9.5

Skeletal Profit and Loss
Statement

Calculations are correct and the work
to arrive at the answers is accurate
Calculations are partially correct Calculations are not accurate 9.5

Total 100%

Module Two: Merchandising for a Profit

I. DEFINING THE BASIC PROFIT FACTORS
A. ELEMENTS OF BASIC PROFIT FACTORS
1. OPERATING INCOME: SALES

a. Gross Sales Quantity Price Total
Item A

0

Item B 0
Item C 0
Gross Sales 0

b. Customer Returns and Allowances Total Total
Quantity Price Time PD 1 Quantity Price Time PD 2

Return A 0 0
Return B 0 0
Return C 0 0
Allowance A 0 0
Allowance B 0 0
Allowance C 0 0
Total 0 0

Customer returns and allowances %
Total returns
Allowances
Gross sales
Returns allowances %

c. Net Sales
Gross sales
Returns/allowances
Net sales 0

Dept Net Sales as a % of total store sales
Net sales
Customer returns and allowances %
Gross sales % 0%

2. COST OF MERCHANDISE SOLD
Billed cost
Inward transportation
Workroom costs
Cash discount
Total cost of merchandise 0

3. GROSS MARGIN
Net sales
Total cost of goods sold
Gross margin 0

4. OPERATING EXPENSES
Direct expenses

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Indirect expenses
Total $ operating expenses 0

Operating expense $
Net sales $
Operating expenses %

5. OPERATING NET PROFIT
Net sales
Cost of merchandise sold
Operating expenses
Profit 0

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Total
Returns + Allowances

0

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Module Two: Merchandising for a Profit

Operating Income (Gross Sales and Net Sales)

1. Return Percentages: Customer returns and allowances for
Department #620 came to $5,500. Gross sales in the
department were $100,000. What percentage of merchandise
sold was returned?

Customer returns and allowances $5,500
Gross sales $100,000
Return Percentage

2. Net Sales $: If gross sales for Store A are $1,150,000 and
reductions are $345,000, what are the net sales?

Gross sales $ $1,150,000
Reductions $ $345,000
Net sales $

3. Men’s Store: If gross sales for Main Street Men’s Store
were $248,000 and the reduction % was 20%, calculate the
following:
a. The dollar amount of reductions
b. The net sales

Gross Sales $248,000
Reduction % 20%
Dollar amount of reductions
Net sales men’s store

4. Loungewear Department: After Mother’s Day this year, the loungewear department had customer
returns of 8.5%. The department’s gross sales amounted to $835,380. As the buyer reviewed last
year’s figures for the same period, the customer returns were 10.5%, with gross sales of $726,149.

Compute the department’s performance in dollars and
percentages for this year and last year, with regard to gross
sales, customer returns, and net sales.

LY %
Loungeware net sales 89.5%
Customer returns 10.5%
Loungewear gross sales $726,149.00 100.0%

5.Towel Department Net Sales: The towel department
represents 2% of total store sales, which are $3,500,000.
What are the net sales planned for the towel department?

Total store sales $3,500,000

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% to total 2.0%
Towel department net sales

6. Shoes/Sneakers Net Sales: Casual sneaker sales
represent 4.5% and athletic shoe sales represent 8.2% of total
store sales. If total store sales are $960,000, what are the
dollar sales for each department?

Casual Sneakers Athletic Shoes
Total store sales $960,000 $960,000
% to total 4.5% 8.2%
Sneakers/shoes net sales

Cost of Goods Sold Practice Problems

7.Total Billed Cost: The girls’ buyer placed an order for the
following merchandise:

150 sweaters with a billed cost of $7.75 each
175 knit tops with a billed cost of $4.50 each
250 leggings with a billed cost of $5.25 each

Calculate the total billed cost for this order.

# Units Billed cost
Sweaters 150 $7.75
Knit Tops 175 $4.50
Leggings 250 $56.25
Total

8.Total Cost of Merchandise: A gift shop has workroom
costs of $575. The billed cost of merchandise sold amounted
to $59,000, with cash discounts earned of $1,180 and freight
charges of $650. Find the total cost of the merchandise.

Billed cost Shipping
Total Cost of Merchandise $59,000 $650
Gross Margin Practice Problems

9. Gross Margin: Calculate the gross margin in dollars and
percentage for the home department if:

Net sales = $149,000
Billed cost of merchandise = $84,250

Cost discount=6.5%
Shipping charges = $840

Billed Cost Cost Discount %
COGS $84,250 6.50%

Net sales $149,000
COGS $0
Gross Margin Total Cost and Percentage

�2

Operating Expense Practice Problems

10. Total Expenses and Comparison of Sales: Analyze the
following information:

TY Plan
Net sales $485,000 $520,000

Advertising costs $82,000 $85,000
Salaries $94,000 $90,000

Find the following:
a. What are the total expenses in $ and % for TY, Plan, and
LY? TY Plan

Advertising costs $82,000 $85,000
Salaries $94,000 $90,000

Total expenses
Total net sales $485,000 $520,000

Expense %

b. What is the comparison (build) of sales for TY versus Plan
and TY versus LY? TY Plan

Net sales $485,000 $520,000
Build TY vs. Plan

Build TY vs. LY

Skeletal Profit and Loss Statements

Net sales $1,390,000
Gross margin $574,700

Profit $105,000
$ %

Net Sales Problem One $1,390,000 100.0%
-COGS
=GM $574,700
-Expenses
=Profit/Loss $105,000

11.Skeletal Profit and Loss Statement: Set up skeletal profit
and loss statement in both dollars and percentage given the
information.

Gross margin $535,000
Gross margin 25%

Expenses $625,000

Net Sales Problem Two $2,140,000 100.0%
-COGS
=GM $535,000 25.0%
-Expenses $625,000
=Profit/Loss

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TY %
91.50%
8.5%

$835,380.00 100.00%

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Total costs

Workroom costs Discounts Total cost
$575 $1,180

Cost Discount $ Shipping COGS
$840

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LY

$450,000

$86,000
$91,000

LY
$86,000
$91,000

$450,000

LY
$450,000

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Correct formula and answer
One or more formula errors

Wrong formula or no formula

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Module Two: Merchandising for a Profit

I. DEFINING THE BASIC PROFIT FACTORS
A. ELEMENTS OF BASIC PROFIT FACTORS
1. OPERATING INCOME: SALES

a. Gross Sales Quantity Price Total
Item A

0

Item B 0
Item C 0
Gross Sales 0

b. Customer Returns and Allowances Total Total
Quantity Price Time PD 1 Quantity Price Time PD 2

Return A 0 0
Return B 0 0
Return C 0 0
Allowance A 0 0
Allowance B 0 0
Allowance C 0 0
Total 0 0

Customer returns and allowances %
Total returns
Allowances
Gross sales
Returns allowances %

c. Net Sales
Gross sales
Returns/allowances
Net sales 0

Dept Net Sales as a % of total store sales
Net sales
Customer returns and allowances %
Gross sales % 0%

2. COST OF MERCHANDISE SOLD
Billed cost
Inward transportation
Workroom costs
Cash discount
Total cost of merchandise 0

3. GROSS MARGIN
Net sales
Total cost of goods sold
Gross margin 0

4. OPERATING EXPENSES
Direct expenses

�1

Indirect expenses
Total $ operating expenses 0

Operating expense $
Net sales $
Operating expenses %

5. OPERATING NET PROFIT
Net sales
Cost of merchandise sold
Operating expenses
Profit 0

�2

Total
Returns + Allowances

0

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�4

Module Two: Merchandising for a Profit

Operating Income (Gross Sales and Net Sales)

1. Return Percentages: Customer returns and allowances for
Department #620 came to $5,500. Gross sales in the
department were $100,000. What percentage of merchandise
sold was returned?

Customer returns and allowances $5,500
Gross sales $100,000
Return Percentage

2. Net Sales $: If gross sales for Store A are $1,150,000 and
reductions are $345,000, what are the net sales?

Gross sales $ $1,150,000
Reductions $ $345,000
Net sales $

3. Men’s Store: If gross sales for Main Street Men’s Store
were $248,000 and the reduction % was 20%, calculate the
following:
a. The dollar amount of reductions
b. The net sales

Gross Sales $248,000
Reduction % 20%
Dollar amount of reductions
Net sales men’s store

4. Loungewear Department: After Mother’s Day this year, the loungewear department had customer
returns of 8.5%. The department’s gross sales amounted to $835,380. As the buyer reviewed last
year’s figures for the same period, the customer returns were 10.5%, with gross sales of $726,149.

Compute the department’s performance in dollars and
percentages for this year and last year, with regard to gross
sales, customer returns, and net sales.

LY %
Loungeware net sales 89.5%
Customer returns 10.5%
Loungewear gross sales $726,149.00 100.0%

5.Towel Department Net Sales: The towel department
represents 2% of total store sales, which are $3,500,000.
What are the net sales planned for the towel department?

Total store sales $3,500,000

�1

% to total 2.0%
Towel department net sales

6. Shoes/Sneakers Net Sales: Casual sneaker sales
represent 4.5% and athletic shoe sales represent 8.2% of total
store sales. If total store sales are $960,000, what are the
dollar sales for each department?

Casual Sneakers Athletic Shoes
Total store sales $960,000 $960,000
% to total 4.5% 8.2%
Sneakers/shoes net sales

Cost of Goods Sold Practice Problems

7.Total Billed Cost: The girls’ buyer placed an order for the
following merchandise:

150 sweaters with a billed cost of $7.75 each
175 knit tops with a billed cost of $4.50 each
250 leggings with a billed cost of $5.25 each

Calculate the total billed cost for this order.

# Units Billed cost
Sweaters 150 $7.75
Knit Tops 175 $4.50
Leggings 250 $56.25
Total

8.Total Cost of Merchandise: A gift shop has workroom
costs of $575. The billed cost of merchandise sold amounted
to $59,000, with cash discounts earned of $1,180 and freight
charges of $650. Find the total cost of the merchandise.

Billed cost Shipping
Total Cost of Merchandise $59,000 $650
Gross Margin Practice Problems

9. Gross Margin: Calculate the gross margin in dollars and
percentage for the home department if:

Net sales = $149,000
Billed cost of merchandise = $84,250

Cost discount=6.5%
Shipping charges = $840

Billed Cost Cost Discount %
COGS $84,250 6.50%

Net sales $149,000
COGS $0
Gross Margin Total Cost and Percentage

�2

Operating Expense Practice Problems

10. Total Expenses and Comparison of Sales: Analyze the
following information:

TY Plan
Net sales $485,000 $520,000

Advertising costs $82,000 $85,000
Salaries $94,000 $90,000

Find the following:
a. What are the total expenses in $ and % for TY, Plan, and
LY? TY Plan

Advertising costs $82,000 $85,000
Salaries $94,000 $90,000

Total expenses
Total net sales $485,000 $520,000

Expense %

b. What is the comparison (build) of sales for TY versus Plan
and TY versus LY? TY Plan

Net sales $485,000 $520,000
Build TY vs. Plan

Build TY vs. LY

Skeletal Profit and Loss Statements

Net sales $1,390,000
Gross margin $574,700

Profit $105,000
$ %

Net Sales Problem One $1,390,000 100.0%
-COGS
=GM $574,700
-Expenses
=Profit/Loss $105,000

11.Skeletal Profit and Loss Statement: Set up skeletal profit
and loss statement in both dollars and percentage given the
information.

Gross margin $535,000
Gross margin 25%

Expenses $625,000

Net Sales Problem Two $2,140,000 100.0%
-COGS
=GM $535,000 25.0%
-Expenses $625,000
=Profit/Loss

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TY %
91.50%
8.5%

$835,380.00 100.00%

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Total costs

Workroom costs Discounts Total cost
$575 $1,180

Cost Discount $ Shipping COGS
$840

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LY

$450,000

$86,000
$91,000

LY
$86,000
$91,000

$450,000

LY
$450,000

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Module Two:

Merchandising for a Profit

1

Recognize the importance of profit calculations in merchandising decisions

Identify the components of a profit and loss statement, including calculations of the following:

Net sales

Cost of goods sold

Gross margin

Expenses

Net profit

Objectives

Complete a profit and loss statement
Identify types of business expenses and their impact on profit
Use profit calculations to:
Make comparisons between departments and stores
Detect trends
Make changes in merchandising strategy to achieve an increase in profits
Objectives (continued)

Alteration and workroom costs
Balance sheet
Billed cost
Build/percentage change/trend
Cash discounts
Closing inventory
Contribution
Controllable expenses
Controllable margin
Cost
Cost of goods sold (COGS)/cost of merchandise sold
Customer allowance or markdown
Customer returns
Customer returns and allowances
Direct expenses
Final profit and loss statement
Key Terms

Gross margin
Gross sales
Income statement
Indirect expenses
Inward freight
Net loss
Net operating profit
Net profit
Net sales
Opening inventory
Operating expenses
Operating income
Profit and loss statement
Reductions
Retail
Sales volume
Skeletal profit and loss statement
Total cost of goods purchased
Total cost of goods sold
Total merchandise handled
Key Terms

Key Concept Formulas
Cost of Goods Sold
Total cost of goods sold $ Billed cost $ + Inward freight charges $ + Workroom cost $ – Cash discount $

Cost of goods sold $
Billed cost
Billed cost = List price – trade discounts(s)
Billed cost = # Units purchased

Key Concept Formulas
Customer Returns and Allowances
Customer returns and allowances $ Total of all refunds or credits to the customer on individual items of merchandise $ Number of units actually returned
Customer returns and allowances %
Customer returns and allowances $ Gross sales $ Customer returns and allowances % and allowances $

Key Concept Formulas
Department’s Net Sales
Department’s net sales % of total stores sales
Gross sales
Gross sales Total of all prices charged to consumers of individual items Number of units actually sold
Gross sales $

Net Cost
Net cost $ = Billed cost $ Cash discount $
Net cost $ = List price $ Trade discount(s) $ Cash discount $
Net Sales
Net Sales $ = Gross sales $ Customer returns and allowances $
Key Concept Formulas

Key Concept Formulas
Build/Percentage Change/Trend
Build/percentage change/trend = × 100
= × 100
Gross Margin
Gross margin = Net sales
Gross margin $ = Gross margin %
Gross margin % = × 100

Key Concept Formulas
Operating Expenses
Operating expenses = D
Operating expenses $ = O
Operating expenses = × 100
Net Profit
Net profit = Net sales
Net operating profit = G
Net profit $ = Net profit $
Net profit% = × 100

Use of Profit Calculations
Exchange data and compare stores to determine relative strengths and weaknesses.
Indicate the direction of the business and whether it is prosperous, struggling for survival, or bankrupt.
Provide a statement for analysis so that knowledgeable changes in management or policy can be made.
Improve the profit margin by using this analysis.
Profit Components

Retail store sells merchandise to consumers at a profit
Buyer is responsible for creating the merchandise assortment
Selecting merchandise is determined after planning and analysis of what sold in a previous time period
Need to determine what, when, where, and how much to buy and what to pay for these purchases
Cost: Amount the retailer/buyer pays for these purchases
Retail: Price stores offer merchandise for sale to the consumer
Defining the Basic Profit Factors

Net Sales: How much merchandise has been sold in dollars
Cost of Goods Sold (COGS): The amount paid for the goods sold
Gross Margin (GM): Resulting amount when COGS is subtracted from net sales
Operating Expenses: Expenses incurred in buying/selling process other than the cost of goods
Net Profit: Resulting amount when expenses are subtracted from GM
Defining the Basic Profit Factors

Gross sales: The entire dollar amount received for goods sold during a given period before any reductions are taken. Can also be though of as the total sales based on the initial or regular retail price.
Reductions:
Customer returns: When merchandise is returned and the customer receives a refund.
Customer allowance or markdown: Price reduction given to a customer.
Net sales: Sales total after all reductions have been deducted from gross sales. Amount of sales collected from the sale of merchandise that actually remains sold. More significant sales figure.
Defining the Basic Profit Factors

Cost of Goods Sold (COGS): Cost of merchandise that has been sold during a given period
Cost or purchase: Price that appears on the purchase order/invoice
Inward freight: Amount a vendor charges for transporting merchandise to the retailer
Alteration and workroom costs: Charge to a department to get merchandise ready for sale
Cash discounts: Percentage or dollar amount deducted from the invoiced cost that was negotiated between the buyer and vendor
Defining the Basic Profit Factors

Gross Margin (GM): The buyer’s measure of profitability. To maximize GM, buyers need to:
Drive sales
Negotiate the best cost price
Operating expenses:
Direct: Specific to a given department and would end if department was discontinued
Indirect: Store expenses that exist whether a department is added or discontinued

Defining the Basic Profit Factors

Gross Sales: Total initial dollars received for merchandise sold during a given period
Concept:
Gross sales $ = Total of all the initial prices charged × Number of units
to consumers on individual items actually sold
Problem:
During the week (Sunday through Saturday), a toy department sold 30 dolls (Group A) priced at $15 each; 25 dolls (Group B) priced at $25 each; and 5 dolls (Group C) priced at $30 each. What were the gross sales for the dolls for that week?

Sales

Solution (Arithmetic):
30 dolls @ $15 each = $450
25 dolls @ $25 each = $625
5 dolls @ $30 each = $150
Total gross sales = $1,225
Sales

Customers can receive the following from a retailer:
Refund of the purchase price
Reduction to the selling price
These transactions result in a cancellation of the gross sale and inventory value.
Reductions (markdowns) to the selling price are commonplace in retailing today.
Customer Returns and Allowances

Concept:
Customer returns = Total of all refunds or credits × Number of units
And allowances $ to the customer on individual actually returned
items of merchandise $
Problem:
On Saturday, the junior petite department refunded $98 for one leather jacket;
$75 each for two wool skirts; and $55 each for two knit tops. Other returns for the week amounted to $400, and the weekly total of markdowns given was $1,687. What was the dollar amount of customer returns and allowances for Saturday? For the week?
Customer Returns and Allowances

Solution (Arithmetic):
$98 x 1 leather jacket = $98
$75 x 2 wool skirts = $150
$55 x 2 knit tops = $110
Customer returns for Saturday = $358
+ Total weekly customer returns = $400
+ Total weekly customer allowances/markdowns = %1,687
Customer returns and allowances (for week) = $2,445
Customer Returns and Allowances

Customer Returns and Allowances
Concept:
Customer returns and allowances percentage Dollar sum of customer returns and allowances expressed as percentage of gross sales
Customer returns and allowances %
Problem:
Last week, the junior petite department had gross sales of $20,375. Customer returns and allowances for the week totaled $2,445. What was the combined percentage of allowances and merchandise returns for the week?

Solution (Arithmetic):
Customer Returns and Allowances = $2,445 x 100 = 12%
$20,375
Customer Returns and Allowances

Net sales are the sales totals for a given period after customer returns and allowances have been deducted from gross sales.
In retailing, operating income is known as net sales or sales volume.
Net sales are the measure of success and productivity versus the plan for a department, classification, or specific time period.
Gross margin and profit are derived from net sales.
You can calculate a department’s percent to total company/store net sales to compare to other departments.
Net Sales

Concept:
Net sales $ = Gross sales $ – Customer returns and allowances $
Problem:
A shoe department sold $65,000 worth of merchandise. Customer returns and allowances and reductions were $16,250. What were the net sales of this department?
Solution:
Net Sales = $65,000 – $16,250
Net Sales = $48,750
Net Sales

Net Sales
Concept:
Department’s net sales % of total stores sales
Problem:
The costume jewelry department had net sales of $900,000. For the same period, total store sales were $45 million. What is the costume jewelry department’s net sales percentage of the total store’s net sales?
Solution:
Dept.’s net sales % to total store 2%

Sales Versus Plan and Last Year
Key performance indicator
Compare actual sales performance for a period to the plan or last year
Buyers calculate the comparison on a regular basis
Necessary to understand if the sales are meeting the plan and enough to cover expenses and result in a profit
Called: build/percentage change/trend
Formulas:
Build/percentage change/trend = × 100
Build/percentage change/trend = × 100

Same store or comparable store sales:
Sales for a specific time period for stores open at least one year
Store openings or closings do not impact this comparison
Omni-channel (online, mobile, and internet) sales journalize in various ways from retailer to retailer
Sales per square foot:
Determined by dividing the sales figure by the square footage of selling space
Net Sales

Crucial to profitability
Buyers negotiate billed costs for products, discounts, and shipping terms
Cost of Goods Sold = Billed cost $ + Inward freight charges $ + Workroom costs $ – Cash Discounts $
Calculation of Total Cost of Goods Sold:
Billed cost: Purchase price that appears on the invoice
Total billed cost: # Units purchased x Invoice Cost

Cost of Goods Sold (COGS)

Inward freight or transportation costs
Amount a vendor may charge for delivery of merchandise
Inward freight plus billed costs is called the billed delivered cost
Alteration and workroom costs
Alteration costs apply only to merchandise sold
Workroom costs apply to all purchases; these are minimal today as merchandise is negotiated to come into the store floor ready

Cost of Goods Sold (COGS)

Cash discounts
Negotiated price concession given to a buyer by a vendor
Usually a percentage of the total billed cost
Must be converted into a dollar amount
Vendors may offer discounts for payment of an invoice within a specific time
Cost of Goods Sold (COGS)

Concept:
Total cost of = Billed costs $ + Inward freight + Workroom – Cash
Goods sold $ charges $ costs $ discounts $
Problem:
An activewear department, for the first month of the period, had billed costs of merchandise amounting to $80,000; inward freight charges of $2,000; negotiated cash discounts of 7.5%; and workroom costs of $500. Calculate the total cost of merchandise purchased.

Cost of Goods Sold (COGS)

Solution:
Billed costs = $80,000
+ Inward freight = + 2,000
Billed delivered cost = $82,000
+ Workroom costs = + 500
Gross merchandise costs = $82,500
– Cash discount (7.5% x $80,000) = – 6,000
Total cost of goods sold = $76,500
Cost of Goods Sold (COGS)

Gross Margin (GM)
Difference between the total net sales and total cost of goods sold.
Measure of profitability performance for a buyer
Must be large enough to cover expenses incurred or a loss will result
Important in both dollars and percentage. Both appear on buyer’s reports
Concepts:
Gross margin $ = Gross margin %
Gross margin % = × 100

Problem:
A department had net sales of $300,000, with the total cost of goods sold at $180,000. Determine the gross margin dollars and percentage.
Solution:
Net sales = $300,000
– Total cost of goods sold = – $180,000
Gross margin = $120,000
Gross margin % = $120,000 x 100 = 40%
$300,000
Gross Margin (GM)

Control and management of expenses are a major concern for retailers
Two types:
Direct: Exist only within a given department and cease if department is discontinued
Indirect: Will continue to exist even if the particular department is discontinued
Concept:
Operating Expenses = Direct expenses + Indirect expenses
Operating Expenses

Problem:
A children’s department has net sales of $300,000, and indirect expenses are 10% of net sales. Direct expenses are:
• Selling salaries = $24,000
• Advertising expenses = $6,000
• Buying salaries = $12,000
• Other direct expenses = $18,000
Find the total operating expenses of the department in dollars and as a percentage.
Operating Expenses

Solution:
Indirect expenses (10% x $300,000) = $30,000
Direct expenses:
Selling salaries = $24,000
Advertising expenses = $6,000
Buying salaries = $12,000
Other = $18,000
Total dollar operating expenses = $90,000
Operating expense % = $90,000 x 100% = 30%
$300,000
Operating Expenses

Also known as income statement
Summarizes the basic merchandising factors that affect profit results
Analyzed on a specific time basis (usually, quarterly, seasonally, and yearly) to determine if a profit or loss occurred within a specific business unit
If income exceeds expenses, profit results
If expenses exceeds income, a loss results
As a merchant, it’s important to understand and use the data to improve a merchandising operation
It’s the buyer’s responsibility to ensure that a profit is earned on merchandise sold during a specific period
Profit and Loss Statement

Quick method to determine a department’s profit or loss for a specific time period
Transactions are not detailed
Expressed in both dollars and percentage
All percentages are a factor of net sales
Used to compare business trends from a previous time period or to compare to industry-wide figures to improve profit
Profit can vary as one or more of the key factors (net sales, cost of goods sold, or operating expenses) of change
Skeletal Profit and Loss Statement

$ %
Net Sales 100
-COGS COGS %=COGS $ X 100
Net Sales $
=GM GM %=GM $ X 100
Net Sales $
-Operating Exp. OE %=OE $ X 100
Net Sales $
=Profit or Loss P/L %=P/L $ X 100
Net Sales $
Skeletal Profit and Loss Statements

Problem:
The juniors’ sportswear department in Store A had net sales of $160,000. The cost of goods sold was $88,000, and operating expenses were $64,000.
The juniors’ sportswear department in Store B, for the same business period, had net sales of $260,000. The cost of goods sold was $135,200, and operating expenses were $109,200. Which store earned a higher net profit percentage?
Skeletal Profit and Loss Statements

Solution:

Skeletal Profit and Loss Statements
Store A Store B
Net sales $160,000 100% $260,000 100%
Cost of goods sold – 88,000 -55% -135,200 -52%
Gross margin $72,000 45% $124,800 48%
– Operating expenses – 64,000 -40% -109,200 -42%
Net profit $8,000 5% $15,600 6%

Concept:
Cost of goods sold $ = Cost of goods sold % x Net sales $
Gross margin $ = Gross margin % x Net sales $
Operating expenses $ = Operating expenses % x Net sales $
Net profit $ = Net profit % x Net sales $
Problem:
The junior sportswear department in Store A had net sales of $160,000. The cost of goods sold was 55%, gross margin was 45%, operating expenses were 40%, and net profit was 5%. What were the dollar amounts of each?

Skeletal Profit and Loss Statements

Solution:
Net sales = $160,000
– Cost of goods sold = – 88,000 ($160,000 x 55%)
= Gross margin = $72,000 ($160,000 x 45%)
– Operating expenses = – 64,000 ($160,000 x 40%)
=Net profit = $8,000 ($160,000 x 5%)
Skeletal Profit and Loss Statements

Show the basic profit factors in detail
Includes information pertaining to stock levels
Needed to determine the value of inventory or merchandise sold (the retail method of inventory)
Opening inventory: Retail value of merchandise in stock at the beginning of the accounting period
Closing inventory: Amount of merchandise in stock at the end of the accounting period
Total merchandise handled: Sum of merchandise at cost available for sale; opening inventory at cost added to cost of new net purchases and transportation charges
Final Profit and Loss Statements

Opening inventory at cost $100,000
+ Billed costs on new purchases + $500,000
+ Inward freight + $1,000
Total merchandise handled at cost = $601,000
‒ Closing inventory at cost – $159,000
Gross cost of goods sold = $422, 000
Final Profit and Loss Statements

Factors involved in profitability are variable and are different for different organizations
Can vary over time
To increase profit:
Increase sales
Decrease the cost of goods sold
Decrease expenses (only affects the profit, not the gross margin)

How to Increase Profits

Sales Results: Measured in dollars and against the plan/goal set. (How well did the merchandise purchased sell?)
Inventory Results: Analyzed by stock turn compared to the plan/goal set; turn is the sales for a period divided by the stock for a period
Gross Margin Results: Achieved by pricing merchandise at a profitable markup and selling it at a profitable retail price; analyzed by vendor, department, and classification
Net Operating Profit Results: Evaluated at the level determined by management with designated expenses that can be attributable to the department’s operation.
Evaluating a Buyer

FMM 225 Key Concepts and Formulas

Billed Cost

· Billed cost = List price minus trade discounts(s)

· Billed cost = # Units purchased

Book Inventory

· Book inventory at retail = Physical inventory + Net retail purchases (Total merchandise handled) + Other stock additions Net sales Markdown differences Other deductions from stock

· Book inventory at cost Opening retail book inventory (100% Cumulative markup % achieved on stock Purchases)

Build/Percentage Change/Trend

· Build/percentage change/trend = × 100

· Build/percentage change/trend = × 100

Cost (Markup Formulas)

· Cost $

· Cost %

=

· Cost %
· Cost %
· Cost $

Cost of Goods Sold

· Total cost of goods sold $ Billed cost $ + Inward freight charges $ + Workroom cost $ minus Cash discount $

·

· Cost of goods sold $

Customer Returns and Allowances

· Customer returns and allowances $ Total of all refunds or credits to the customer on individual items of merchandise $ Number of units actually returned

· Customer returns and allowances %

· Customer returns and allowances $ Gross sales $ Customer returns and allowances % and allowances $

Cumulative Markup %

· Cumulative markup % 100

Department’s Net Sales

· Department’s net sales % of total stores sales

Gross Margin

· Gross margin = Net sales

· Gross margin $ = Gross margin %

· Gross margin % = × 100

Gross Margin %

· Gross margin % 100

· Gross margin % 100

· Gross margin % 100

Gross Sales

· Gross sales Total of all prices charged to consumers of individual items Number of units actually sold

Gross Sales $

Initial Markup %

· Initial markup %

· Initial markup %
· Initial markup %

Maintained Markup %

· Maintained markup % 100

· Maintained markup % 100

· Maintained markup % Initial markup % Retail reduction % (100% Initial markup %)

· Purchase balance Total planned Purchases to date (pieces, retail, cost, or markup %)

Markdown

· Markdown $ Original or present retail price $ New retail price $

· Markdown $ Percentage off Present retail price $

· Total markdown $ First total $ markdown Second total $ markdown

· Planned Markdown $ N Markdown %

· Markdown %

· Markdown %

· Markdown cancellation Higher retail $ Markdown price $

· New Markdown $ Gross markdown $ Markdown canellation$

Markup

· Markup $ Retail $ Cost $

· Markup % on retail 100 or 100

· Markup % on retail 100 or 100

· Cumulative retail markup % on entire purchase

· 100 or 100

Net Cost

· Net cost $ = Billed cost $ Cash discount $

· Net cost $ = List price $ Trade discount(s) $ Cash discount $

Net Profit

· Net profit = Net sales

· Net operating profit = G

· Net profit $ = Net profit $

· Net profit% = × 100

Net Sales

· Net Sales $ = Gross sales $ Customer returns and allowances $

Operating Expenses

· Operating expenses = D

· Operating expenses $ = O

· Operating expenses = × 100

Retail

· Retail $ Cost $ Markup $

· Retail % Cost % Markup %

· Retail $ or

Retail Reduction %

· Retail reduction %

Sell Through Percentage

· Sell through %

· Shortage or overage

· Shortage (or overage) $ Closing book inventory at retail $ Physical inventory count at retail $

· Shortage %

· Planned dollar shortage Planned shortage percentage Planned net sales $

Weeks of Supply

· Weeks of Supply

FMM 225
Key Concepts and Formulas

B
illed C
ost

·

Billed cost = List price minus

trade discounts(s)

·

Billed cost = # Units purchased
×
Invoice

cost

Book I
nventory

·

Book inventory at retail = Physical inventory + Net retail purchases (Total merchandise handled) +
Other stock additions
–
Net sales
–

Markdown differences
–

Other deductions from stock

·

Book inventory at cost
=

Opening retail book inventory
×

(100%
–

Cumul
ative markup % achieved
on stock
+

Purchases)

Build/Percentage Change/T
rend

·

Build/percentage change/trend =
This

year

sales

–
last

year

sales
last

year

sales

× 100

·

Build/percentage change/trend =
This

year

sales

–
last

year

sales
planned

sales

× 100

Cost
(Markup F
ormulas)

·

Cost $
=
Retail

$
–
Markup

$

·

Cost % =
Cost

$
Retail

$
×
100

·

Cost %
=
Retail

%
–
Markup

%

·

Cost %
=
100%
–
Markup

%

·

Cost $
=
Retail

$
×
100%

–
Markup

%
)

Cost of Goods Sold

·

Total cost of goods sold $
=

Billed cost $ + Inward freight charges $ +
Workroom cos
t $ minus

Cash
discount $

·

Cost

of

goods

sold

%

=

Cost

of

goods

sold

$
Net

sales

$

×
100

·

Cost of goods sold $
=
Cost

of

goods

%

×
Net

sales

$

Customer Returns and A
llowances

·

Customer returns and allowances $
=

Total of all refunds or credits to the customer on individual
items of merchandise $
×

Number of units actually returned

·

Customer returns and allowances %
=

customer

returns

and

allowances

$
gross

sales

$

×
100

·

Customer returns and allowances $
=

Gross sale
s $
×

Customer returns and allowances % and
allowances $

Cumulative M
arkup %

·

Cumulative markup %
=
Cumulative

markup

$
Cumulative

retail

$
×

100

Department’s Net S
ales

FMM 225 Key Concepts and Formulas
Billed Cost
 Billed cost = List price minus trade discounts(s)
 Billed cost = # Units purchased ×Invoice cost
Book Inventory
 Book inventory at retail = Physical inventory + Net retail purchases (Total merchandise handled) +
Other stock additions -Net sales – Markdown differences – Other deductions from stock
 Book inventory at cost = Opening retail book inventory × (100% – Cumulative markup % achieved
on stock + Purchases)
Build/Percentage Change/Trend
 Build/percentage change/trend =
This year sales -last year sales
last year sales
× 100
 Build/percentage change/trend =
This year sales -last year sales
planned sales
× 100
Cost (Markup Formulas)
 Cost $ =Retail $-Markup $
 Cost % =
Cost $
Retail $
×100
 Cost % =Retail %-Markup %
 Cost % =100%-Markup %
 Cost $ =Retail $×100% -Markup %)
Cost of Goods Sold
 Total cost of goods sold $ = Billed cost $ + Inward freight charges $ + Workroom cost $ minus Cash
discount $
 Cost of goods sold % =
Cost of goods sold $
Net sales $
×100
 Cost of goods sold $ =Cost of goods % ×Net sales $
Customer Returns and Allowances
 Customer returns and allowances $ = Total of all refunds or credits to the customer on individual
items of merchandise $ × Number of units actually returned
 Customer returns and allowances % =
customer returns and allowances $
gross sales $
×100
 Customer returns and allowances $ = Gross sales $ × Customer returns and allowances % and
allowances $
Cumulative Markup %
 Cumulative markup % =
Cumulative markup $
Cumulative retail $
× 100
Department’s Net Sales