Florida General Contractor Practice Exam

A company has an estimated income of $350,000 for the past year. To achieve a gross profit ratio of 48%, what should be the cost of sales?

1. $182,000

2. $182,500

3. $182,750

4. $175,000

The correct answer is: $182,000

To determine the required cost of sales to achieve a gross profit ratio of 48% based on an estimated income of $350,000, it's essential to understand how gross profit and cost of sales relate to each other. The gross profit ratio is calculated using the formula: \[ \text{Gross Profit Ratio} = \frac{\text{Gross Profit}}{\text{Total Revenue}} \] In this case, the gross profit is equal to the income minus the cost of sales. Thus, we can rearrange this formula to find the cost of sales. Let's start by calculating the gross profit needed for a gross profit ratio of 48%. This can be expressed mathematically as: \[ \text{Gross Profit} = \text{Gross Profit Ratio} \times \text{Total Revenue} \] Substituting the given values: \[ \text{Gross Profit} = 0.48 \times 350,000 = 168,000 \] Now, since gross profit equals total revenue minus cost of sales, we can substitute into the equation: \[ \text{Gross Profit} = \text{Total Revenue} - \text{Cost of Sales} \] This rearranges to: \[ \text{Cost of Sales