Exercise 9-11 (Algo) Calculate gross profit ratio and cost of goods sold LO 9-2, 9-3
Refer to the following mentioned data.

 	(In millions)
2020	2019	2018
Net sales	$ 34,329	$ 30,601	$ 26,226
Cost of products sold	14,992	13,096	13,545
Gross margin	$ 19,337	$ 17,505	$ 12,681
Required:
Calculate the gross profit ratio for each of the past three years.
Assume that Campbell’s net sales for the first four months of 2021 totaled $12.33 billion. Calculate an estimated cost of goods sold and gross profit for the four months, using the gross profit ratio for 2020.
 





Let's break down the problem into parts:

### 1. **Gross Profit Ratio**
The formula for **Gross Profit Ratio** is:

\[
\text{Gross Profit Ratio} = \frac{\text{Gross Margin}}{\text{Net Sales}} \times 100
\]

### Calculating the Gross Profit Ratio for each year:
Using the data provided:

#### 2020:
- Net Sales = $34,329 million
- Gross Margin = $19,337 million

\[
\text{Gross Profit Ratio} = \frac{19,337}{34,329} \times 100 = 56.34\%
\]

#### 2019:
- Net Sales = $30,601 million
- Gross Margin = $17,505 million

\[
\text{Gross Profit Ratio} = \frac{17,505}{30,601} \times 100 = 57.19\%
\]

#### 2018:
- Net Sales = $26,226 million
- Gross Margin = $12,681 million

\[
\text{Gross Profit Ratio} = \frac{12,681}{26,226} \times 100 = 48.36\%
\]

### 2. **Estimated Cost of Goods Sold (COGS) for 2021 (First Four Months)**

We can use the gross profit ratio from 2020 to estimate the COGS for the first four months of 2021.

- Net Sales (First Four Months of 2021) = $12.33 billion (or $12,330 million)
- Gross Profit Ratio (2020) = 56.34%

Using the gross profit ratio, we know:

\[
\text{Gross Profit} = \text{Net Sales} \times \frac{\text{Gross Profit Ratio}}{100}
\]

\[
\text{Gross Profit} = 12,330 \times \frac{56.34}{100} = 6,946.822 \text{ million}
\]

Now, we can calculate the **Cost of Goods Sold (COGS)**:

\[
\text{COGS} = \text{Net Sales} - \text{Gross Profit}
\]

\[
\text{COGS} = 12,330 - 6,946.822 = 5,383.178 \text{ million}
\]

### 3. **Summary of Results**:
- **Gross Profit Ratio** for 2020 = 56.34%
- **Gross Profit Ratio** for 2019 = 57.19%
- **Gross Profit Ratio** for 2018 = 48.36%
- **Estimated Gross Profit for 2021 (first four months)** = $6,946.822 million
- **Estimated COGS for 2021 (first four months)** = $5,383.178 million

Would you like more details on any part of this solution, or do you have any questions?

Here are 5 related questions that might help you explore this topic further:
1. How is the gross profit ratio used to analyze a company's profitability?
2. Why did the gross profit ratio decrease from 2019 to 2020?
3. How can companies improve their gross profit ratio?
4. What other financial ratios complement the gross profit ratio for a full analysis of profitability?
5. How might changes in sales volume impact both gross margin and gross profit ratio?

**Tip:** Monitoring gross profit ratio trends over time helps in assessing if a company is controlling its production costs effectively relative to its sales.

Exercise 9-11 (Algo) Calculate gross profit ratio and cost of goods sold LO 9-2, 9-3. Refer to the following mentioned data.
(In millions)
2020	2019	2018
Net sales	$ 34,329	$ 30,601	$ 26,226
Cost of products sold	14,992	13,096	13,545
Gross margin	$ 19,337	$ 17,505	$ 12,681
Required: Calculate the gross profit ratio for each of the past three years. Assume that Campbell’s net sales for the first four months of 2021 totaled $12.33 billion. Calculate an estimated cost of goods sold and gross profit for the four months, using the gross profit ratio for 2020.

Learn how to calculate the gross profit ratio for Campbell’s 2018-2020 net sales and estimate the cost of goods sold (COGS) for the first four months of 2021. This problem involves financial ratio analysis using formulas for gross profit ratio and COGS. Ideal for college-level finance and accounting students.

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