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From Wikipedia

Gross margin

Gross margin, gross profit margin or gross profit rate is the difference between the sales and the production costs excluding overhead, payroll, taxation, and interest payments. Gross margin can be defined as the amount of contribution to the business enterprise, after paying for direct-fixed and direct-variable unit costs, required to cover overheads (fixed commitments) and provide a buffer for unknown items. It expresses the relationship between gross profit and sales revenue. It is a measure of how well each dollar of a company's revenue is utilized to cover the costs of goods sold.

It can be expressed in absolute terms:

Gross margin = net sales - cost of goods sold + annual sales return

or as the ratio of gross profit to sales revenue, usually in the form of a percentage:

\text{Gross margin percentage} = \text{(revenue-cost of goods sold)/revenue}

Cost of sales (also known as cost of goods (CoGs)) includes variable costs and fixed costs directly linked to the sale, such as material costs, labor, supplier profit, shipping costs, etc. It does not include indirect fixed costs like office expenses, rent, administrative costs, etc.

Higher gross margins for a manufacturer reflect greater efficiency in turning raw materials into income. For a retailer it will be their markup over wholesale. Larger gross margins are generally good for companies, with the exception of discountretailers. They need to show that operations efficiency and financing allows them to operate with tiny margins.

How gross margin is used in sales

Retailers can measure their profit by using two basic methods, markup and margin, both of which give a description of the gross profit of the sale. The markup expresses profit as a percentage of the retailer's cost for the product. The margin expresses profit as a percentage of the retailer's sales price for the product. These two methods give different percentages as results, but both percentages are valid descriptions of the retailer's profit. It is important to specify which method you are using when you refer to a retailer's profit as a percentage.

Some retailers use margins because you can easily calculate profits from a sales total. If your margin is 30%, then 30% of your sales total is profit. If your markup is 30%, the percentage of your daily sales that are profit will not be the same percentage.

Some retailers use markups because it is easier to calculate a sales price from a cost using markups. If your markup is 40%, then your sales price will be 40% above the item cost. If your margin is 40%, your sales price will not be equal to 40% over cost (indeed it will be 60% above the item cost).

Markup

Markup can be expressed either as a decimal or as a percentage, but is used as a multiplier. Here is an example:

If a product costs the company $100 to make and they wish to make a 50% profit on the sale of the product (sale dollars) they would have to use a markup of 100%. To calculate the price to the customer, you simply take the product cost of $100 and multiply it by (1 + the markup), e.g.: 1+1=2, arriving at the selling price of $200.

The equation for calculating gross margin is: gross margin = sales - cost of goods sold

A simple way to keep markup and gross margin factors straight is to remember that:

  1. Percent of markup is 100 times the price difference divided by the cost.
  2. Percent of gross margin is 100 times the price difference divided by the selling price.

Gross margin (as a percentage of sales)

Most people find it easier to work with gross margin because it directly tells you how many of the sale dollars are profit. In reference to the two examples above:

The $200 price that includes a 100% markup represents a 50% gross margin. Gross margin is just the percentage of the selling price that is profit. In this case 50% of the price is profit, or $100.

\frac{$200 - $100}{$200} * 100% = 50%

In the more complex example of selling price $339, a markup of 66% represents approximately a 40% gross margin. This means that 40% of the $339 is profit. Again, gross margin is just the direct percentage of profit in the sale price.

In accounting, the gross margin refers to sales minus cost of goods sold. It is not necessarily profit as other expenses such as sales, administrative, and financial must be deducted.And it means company are reducing their cost of production or passing their cost to customers. the higher ratio is better

Converting between gross margin and markup

The formula to convert a markup to gross margin is:

\text{Gross margin} = \frac{\text{markup}}{(1 + \text{markup})}

Examples:

  • Markup = 100%; GM = [1 / (1 + 1)] = 0.5 = 50%
  • Markup = 66%; GM = [0.66 / (1 + 0.66)] = 0.39759036 = 39.759036%

The formula to convert a gross margin to markup is:

\text{Markup} = \frac{\text{gross margin}}{(1 - \text{gross margin})}

Examples:

  • Gross margin = 0.5 = 50%; markup = [0.5 / (1 - 0.5)] = 1 = 100%
  • Gross margin = 0.39759036 = 39.759036%; markup = [0.39759036 / (1 - 0.39759036)] = 0.659999996 = 66%

Using gross margin to calculate selling price

Given the cost of an item, one can compute the selling price required to achieve a specific gross margin. For example, if your product costs $100 and the required gross margin is 40%, then

Selling price = $100 / (1 - 40%) = $100 / 0.60 = $166.67

Differences between industries

In some industries, like clothing for example, profit margins are expected to be near the 40% mark, as the goods need to be bought from suppliers at a certain rate before they are resold. In other industries such as software product development, since the cost of duplication is negligible, the gross profit margin can be higher than 80% in many cases.


Product (business)

The noun product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin pr�dūce(re) '(to) lead or bring forth'. Since 1575, the word "product" has referred to anything produced. Since 1695, the word has referred to "thing or things produced". The economic or commercial meaning of product was first used by political economist Adam Smith.

In marketing, a product is anything that can be offered to a market that might satisfy a want or need. In retailing, products are called merchandise. In manufacturing, products are purchased as raw materials and sold as finished goods. Commodities are usually raw materials such as metals and agricultural products, but a commodity can also be anything widely available in the open market. In project management, products are the formal definition of the project deliverables that make up or contribute to delivering the objectives of the project.

In general, product may refer to a single item or unit, a group of equivalent products, a grouping of goods or services, or an industrial classification for the goods or services.

A related concept is subproduct, a secondary but useful result of a production process.

Dangerous products, particularly physical ones, that cause injuries to consumers or bystanders may be subject to product liability.

Product groups

Tangible and intangible products

Products can be classified as tangible or intangible. A tangible product is any physical product that can be touched like a computer, automobile, etc. An intangible product is a non-physical product like an insurance policy.

In its online product catalog, retailer Sears, Roebuck and Company divides its products into departments, then presents products to shoppers according to (1) function or (2) brand. Each product has a Sears item number and a manufacturer's model number. The departments and product groupings that Sears uses are intended to help customers browse products by function or brand within a traditional department store structure.

Sizes and colors

A catalog number, especially for clothing, may group sizes and colors. When ordering the product, the customer specifies size, color and other variables .

Product line

A product line is "a group of products that are closely related, either because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges."

Many businesses offer a range of product lines which may be unique to a single organization or may be common across the business's industry. In 2002 the US Census compiled revenue figures for the finance and insurance industry by various product lines such as "accident, health and medical insurance premiums" and "income from secured consumer loans". The United Nations also classifies products for international economic activity reporting.

The Aspinwall Classification System classifies and rates products based on five variables:

  1. Replacement rate (How frequently is the product repurchased?)
  2. Gross margin (How much profit is obtained from each product?)
  3. Buyer goal adjustment (How flexible are the buyers' purchasing habits with regard to this product?)
  4. Duration of product satisfaction (How long will the product produce benefits for the user?)
  5. Duration of buyer search behavior (How long will consumers shop for the product?)

The National Institute of Governmental Purchasing (NIGP) developed a commodity and services classification system for use by state and local governments, the NIGP Code. The NIGP Code is used by 33 states within the United States as well as thousands of cities, counties and political subdivisions. The NIGP Code is a hierarchical schema consisting of a 3 digit class, 5 digit class-item, 7 digit class-item-group and an 11 digit class-item-group-detail. Applications of the NIGP Code include vendor registration, inventory item identification, contract item management, spend analysis and strategic sourcing.



From Yahoo Answers

Question:

Answers:When a secondary alcohol is oxidised, it is converted to a ketone. The hydrogen from the hydroxyl group is lost along with the hydrogen bonded to the second carbon. The remaining oxygen then double bonds with the carbon. This leaves a ketone, as R1-CO-R2.

Question:Accounting standared have how much ratios? Please define according to management,Administration,W.I.Process and income statement ratios separatelly?

Answers:Hey, I'm not exactly sure what you are asking but I will explain a few ratios and give you their meaning. When you evaluate management you can basically look at any ratio because they are basically responsible for making the decisions and determining the company policies as well as seeing that it gets implemented. Take for example the return on asset ratio.. you take the earnings before interest and tax divided by the total assets. When this answer is lower than the required rate of return expected by the investors it means that the assets are not yielding enough returns. This will cause investors to rather invest their money where they get a higher return for the same or less risk. Income statement ratios has to do with the Performance of the company.. It will be ratios like gross profit %, nett income %, ect. Look at the following site for a comprehensive list of ratio's

Question:a) Write the mechanism for the oxidation of an alcohol to a ketone using hypochlorous acid. What are the by-products of this reaction (the non-organic products)? b) Products from any of the possible alcohols will show similar absorption bands characteristic of two types of bond-stretching in the functional group region. What are these two bond types?

Answers:a) If you are taking Organic Chemistry with the lab manual eighth edition, the mechanism is shown on page 235. The non-organic by-product is hydrochloric acid in water.

Question:For example: The expectation is that the currency impact on that, nothing else changing, would be probably somewhere around 100 basis point impact on our gross margins because of manufacturing efficiencies and enhanced mix of products and so forth."

Answers:"100 basis points" probably means 1%

From Youtube

Oxidation of a Secondary Alcohol Using the Jones Reagent :In this video the product of the reaction of cyclooctanol with the Jones reagent is outlined using ACE Organic. Conversion of alcohol functional groups to ketones, aldehydes, and carboxylic acids can be accomplished using a variety of oxidizing reagents.

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