EBM N4 | Calculate the Weighted Average Gross Profit

EBM N4 | Calculate the Weighted Average Gross Profit

Sihle runs a bookshop, called Rose Bookshop, in a busy shopping centre. There are three slow-moving products at the shop and she wonders how she can change these products into cash. The three products are Xhosa storybooks, novels and Church Thymes. The cost price of the Xhosa storybooks, novels and Church Thymes amount to R50, R75 and R35 respectively. She sells the Xhosa storybooks for R75, the novels for R90, and the Church Thymes for R50. The Xhosa storybooks, novels and Church Thymes amount to 45%, 35% and 20% of total sales respectively. The fixed costs and variable costs per month amount to R1 500 and R400 respectively.

Question: Calculate the Weighted Average Gross Profit for each book

Sihle runs a bookshop and wants to calculate the weighted average gross profit for each of the following books: Xhosa storybooks, novels, and Church Thymes. Here’s the breakdown of the details:

Step 1: Understanding the Formula

The weighted gross profit percentage is calculated using the following formula:

Weighted Gross Profit % = (Gross Profit % × % of Sales) ÷ 100

This formula takes into account the gross profit percentage for each product and multiplies it by the percentage of total sales the product represents. This calculation ensures that products with higher sales proportions have a greater impact on the overall weighted average.

Step 2: Calculating Weighted Gross Profit for Each Product

1. Xhosa Storybooks
– % of Sales: 45%
– Gross Profit %: 33%
Weighted Gross Profit % Calculation:

Weighted Gross Profit % = (33 × 45) ÷ 100 = 14.85% ≈ 15%

2. Novels
– % of Sales: 35%
– Gross Profit %: 17%
Weighted Gross Profit % Calculation:

Weighted Gross Profit % = (17 × 35) ÷ 100 = 5.95% ≈ 6%

3. Church Thymes
– % of Sales: 20%
– Gross Profit %: 30%
Weighted Gross Profit % Calculation:

Weighted Gross Profit % = (30 × 20) ÷ 100 = 6%

Step 3: Calculating the Average Weighted Gross Profit Percentage

Now, to find the average weighted gross profit percentage, we sum the weighted percentages for all three products:

15% + 6% + 6% = 27%

Thus, the average weighted gross profit percentage for the shop is 27%.

Summary of Calculations

The weighted average gross profit percentage is 27% for the bookshop.

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