Olivera Inc. provides the following data for the year 2015: $$\begin{array} { | l | r | }
\hline \text { Sales Revenue } & \$ 625,000 \
\hline \text { Sales Returns and Allowances } & 20,000 \
\hline & \
\hline \text { Sales Discounts } & 5,000 \
\hline \text { Net Sales Revenue } & \$ 600,000 \
\hline
\end{array}$$ On vertical analysis report, gross profit as a percentage of net sales will be:
A) 35.9%
B) 41.67%
C) 56.1%
D) 44.1%

Question

Olivera Inc. provides the following data for the year 2015: $$\begin{array} { | l | r | } 
\hline \text { Sales Revenue } & \$ 625,000 \
\hline \text { Sales Returns and Allowances } & 20,000 \
\hline & \
\hline \text { Sales Discounts } & 5,000 \
\hline \text { Net Sales Revenue } & \$ 600,000 \
\hline
\end{array}$$ On vertical analysis report, gross profit as a percentage of net sales will be:
A) 35.9%
B) 41.67%
C) 56.1%
D) 44.1%

Quizplus · Accepted Answer

Gross profit is calculated as the difference between net sales revenue and cost of goods sold. 
$$\text{Gross Profit} = \text{Net Sales Revenue} - \text{Cost of Goods Sold}$$
We don't have the value for cost of goods sold, so we cannot calculate gross profit directly. However, we can calculate the gross profit percentage by dividing gross profit by net sales revenue and multiplying by 100. 
$$\text{Gross Profit Percentage} = \frac{\text{Gross Profit}}{\text{Net Sales Revenue}} \times 100$$
Since we don't have the value for gross profit or cost of goods sold, we can use the information given in the question to calculate the net sales revenue percentage. 
$$\text{Net Sales Revenue Percentage} = \frac{\text{Net Sales Revenue}}{\text{Sales Revenue}} \times 100 = \frac{\$600,000}{\$625,000} \times 100 = 96\%$$
Since sales returns and allowances and sales discounts are subtracted from sales revenue to reach net sales revenue, these items would decrease the gross profit percentage. Therefore, the gross profit percentage would be less than the net sales revenue percentage. 
The correct answer is B) 41.67%, as it is the only option less than 96%.

Olivera Inc On Vertical Analysis Report, Gross Profit as a Percentage of \begin{array}