Review questions

Imagine you own a bakery. You just sold 100 cakes, but you forgot to write down how much they cost you to make! The total selling price is $500. If each cake cost you $3 to make, what’s your total cost of sales?

Answer explanation

To find the total cost of sales, multiply the number of cakes (100) by the cost per cake ($3). Total cost = 100 * 3 = $300.

Now, can you quickly tell me what your gross profit would be?

Answer explanation

Gross profit is calculated by subtracting the cost of goods sold (COGS) from total revenue. If you provide the revenue and COGS, I can help you determine the gross profit.

You’re managing an ice cream shop, and one of your suppliers offers a 5% trade discount on all bulk purchases of milk. If you buy milk worth $2,000 before the discount, what’s the amount you actually pay?

Answer explanation

To find the amount paid after a 5% discount on $2,000, calculate 5% of $2,000, which is $100. Subtract this from $2,000: $2,000 - $100 = $1,900. Thus, you pay $1,900.

Let’s say you own a gadget store, and you’ve just bought 50 new smartphones for resale. Each phone costs $300, and the expected selling price is $500 each. What’s the markup percentage?

Answer explanation

The markup percentage is calculated as (Selling Price - Cost Price) / Cost Price * 100. Here, it's (500 - 300) / 300 * 100 = 66.67%. Thus, the markup percentage is approximately 66.67%.

Your office furniture has a depreciation rate of 10% per year using the straight-line method. The furniture was purchased for $5,000 and has a useful life of 5 years. What’s the annual depreciation?

Answer explanation

The annual depreciation is calculated as 10% of the purchase price. So, 10% of $5,000 is $500. Therefore, the annual depreciation is $500.

Imagine you’re the manager of a printing company, and you’ve decided to sell an old printing machine. The original cost was $10,000, and it has been depreciated by $6,000 over its useful life. You manage to sell it for $5,000. What’s the profit or loss on disposal?

Answer explanation

The book value of the machine is $4,000 ($10,000 original cost - $6,000 depreciation). Selling it for $5,000 results in a profit of $1,000 ($5,000 sale price - $4,000 book value).

Let’s say your car dealership just sold an old delivery van for $3,000. The van originally cost $15,000, and it had been depreciated by $12,000. Did you make a profit or a loss on the sale, and by how much?

Answer explanation

The van's original cost was $15,000, and after $12,000 depreciation, its book value is $3,000. Selling it for $3,000 means you broke even, resulting in neither profit nor loss.

Your company is selling some office computers. You bought them for $8,000, and they’ve been depreciated by $7,000. If you sell them for just $500, what’s your loss on disposal?

Answer explanation

The original cost is $8,000, and after $7,000 depreciation, the book value is $1,000. Selling for $500 results in a loss of $500 ($1,000 - $500). Thus, the loss on disposal is $500.