Sales revenue used for this computation is net sales (which takes into account sales returns and allowances and sales discounts). On the basis of the sales data presented in Illustration 5-5 and the cost of goods sold data in Illustration 5-10, the gross profit for Highpoint Electronic is $144,000, computed as follows:
A company’s gross profit may also be expressed as a percentage by dividing the amount of gross profit by net sales. For Highpoint Electronic the gross profit rate is 31.3% ($144,000 — $460,000). The gross profit rate is generally considered to be more useful than the gross profit amount because it expresses a more meaningful (qualitative) relationship between net sales and gross profit. For example, a gross profit of $1,000,000 may be impressive. But, if it is the result of a gross profit rate of only 7%, it is not so impressive. (more…)
It is sometimes said of these combination the monopolistic trusts that they reduce prices to the consumer by better methods of production, but all experience shows that this saving of cost goes to the pockets of the producer. The price to the consumer depends upon the supply, which can be reduced at pleasure by the combination.
The arrangement that a higher price results from restricted output involves the “which came first?” question. One might just as well say that restricted output is caused by raising the price or that a price increase and output reduction simultaneously results from a move up the demand curve. But I digress.
