Calculating Gross Profit Margin and Net Profit Margin - Worksheets, Questions and Revision

23 original exam-style questions - 5 pages of questions with a full mark scheme - free printable PDF.

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This topic is chapter 12 of GCSE Business: Finance Practice Book.

3.12 Calculating Gross Profit Margin and Net Profit Margin

AQA 8132 · Calculators not allowed · about 55 minutes

Total Marks

Name: _______________________________ Date: ____ / ____ / ______

Answer ALL questions. Show your working where calculations are required. The income statement extract used below is fictional and repeated where needed.

From the Bright Bean Cafes income statement extract given earlier, state the expenses figure for the year in £.

(Total for Question 1 is 1 mark)

State the formula used to calculate gross profit margin as a percentage.

(Total for Question 2 is 1 mark)

State the formula used to calculate net profit margin as a percentage.

(Total for Question 3 is 1 mark)

Sunny Slice Bakery, a small UK bakery, reports the following income statement extract for the year: Revenue £80,000; Cost of sales £56,000; Gross profit £24,000; Expenses £16,000; Profit for the year £8,000. State the gross profit figure for the year, in pounds.

(Total for Question 4 is 1 mark)

Using the same Bright Bean Cafes extract (Revenue 50,000; Cost of sales 30,000; Gross profit 20,000; Expenses 10,000; Profit for the year 10,000), which one of the following is the net profit margin formula?

A) Profit for the year divided by revenue, times 100
B) Gross profit divided by revenue, times 100
C) Revenue divided by profit for the year, times 100
D) Expenses divided by gross profit, times 100

(Total for Question 5 is 1 mark)

From the Sunny Slice Bakery extract given above, state the expenses figure for the year, in pounds.

(Total for Question 6 is 1 mark)

From the Sunny Slice Bakery extract given above, state the cost of sales figure for the year, in pounds.

(Total for Question 7 is 1 mark)

From the same Bright Bean Cafes extract, state the cost of sales figure for the year in £.

(Total for Question 8 is 1 mark)

From the Bright Bean Cafes income statement extract given earlier, state the gross profit figure for the year in £.

(Total for Question 9 is 1 mark)

A cafe sells the same number of cups of coffee as last year, at the same cost of sales per cup, but raises its selling price. What is the most likely effect on the cafe's gross profit margin?

A) It decreases, because expenses always rise with price
B) It increases, because revenue rises while cost of sales stays the same
C) It stays exactly the same, because margin is not affected by price
D) It becomes negative, because higher prices always reduce demand to zero

(Total for Question 10 is 1 mark)

Which one of the following best explains what a higher gross profit margin indicates about a business's pricing and direct cost control?

A) The business either charges higher markups or has lower cost of sales per unit
B) The business has lower overhead expenses
C) The business's profit for the year is higher than its gross profit
D) The business has a higher net profit margin than gross profit margin

(Total for Question 11 is 1 mark)

Using the Sunny Slice Bakery extract above (gross profit £24,000; revenue £80,000), calculate the gross profit margin as a percentage to one decimal place. Show your working.

(Total for Question 12 is 2 marks)

Bright Bean Cafes' extract shows revenue £50,000 and cost of sales £30,000, giving a gross profit figure. Calculate the gross profit in pounds. Show your working.

(Total for Question 13 is 2 marks)

Using the Bright Bean Cafes figures (gross profit £20,000; revenue £50,000), express the gross profit margin as a fraction and then as a percentage to one decimal place. Show your working.

(Total for Question 14 is 2 marks)

Using the Bright Bean Cafes figures (profit for the year £10,000; revenue £50,000), express the net profit margin as a fraction and then as a percentage to one decimal place. Show your working.

(Total for Question 15 is 2 marks)

Using the Sunny Slice Bakery extract above (profit for the year £8,000; revenue £80,000), calculate the net profit margin as a percentage to one decimal place. Show your working.

(Total for Question 16 is 2 marks)

A third small UK cafe has revenue of £45,000 and cost of sales of £31,500 for the year. Calculate its gross profit margin as a percentage. Show your working.

(Total for Question 17 is 3 marks)

Using Bright Bean Cafes figures (gross profit £20,000; revenue £50,000), calculate the gross profit margin as a percentage to one decimal place. Show your working.

(Total for Question 18 is 2 marks)

Using Bright Bean Cafes figures (profit for the year £10,000; revenue £50,000), calculate the net profit margin as a percentage to one decimal place. Show your working.

(Total for Question 19 is 2 marks)

A different small UK cafe has a gross profit margin of 45.0% and revenue of £60,000 for the year. Calculate the cafe's gross profit, in pounds. Show your working.

(Total for Question 20 is 3 marks)

The same cafe (gross profit margin 45.0%, revenue £60,000, gross profit £27,000 as calculated above) has a net profit margin of 15.0%. Calculate the cafe's total expenses for the year, in pounds. Show your working.

(Total for Question 21 is 3 marks)

A cafe owner says: 'My net profit margin fell from 20% to 15% this year, but my net profit in pounds actually increased.' Explain how this can be true.

(Total for Question 22 is 3 marks)

Bright Bean Cafes has a gross profit margin of 40.0% and a net profit margin of 20.0%. Sunny Slice Bakery has a gross profit margin of 30.0% and a net profit margin of 10.0%. Analyse what these figures suggest about the cost control and overall financial performance of the two businesses.

(Total for Question 23 is 6 marks)

Mark scheme · 3.12 Calculating Gross Profit Margin and Net Profit Margin

Question 1

B1 £10,000 cao
Answer: £10,000.

Question 2

B1 (gross profit / revenue) x 100, oe
Answer: (Gross profit / Revenue) x 100.

Question 3

B1 (profit for the year / revenue) x 100, oe
Answer: (Profit for the year / Revenue) x 100.

Question 4

B1 £24,000 cao
Answer: £24,000.

Question 5

B1 A cao
Answer: A

Question 6

B1 £16,000 cao
Answer: £16,000.

Question 7

B1 £56,000 cao
Answer: £56,000.

Question 8

B1 £30,000 cao
Answer: £30,000.

Question 9

B1 £20,000 cao
Answer: £20,000.

Question 10

B1 B cao
Answer: B

Question 11

B1 A cao
Answer: A

Question 12

M1 (24,000 / 80,000) x 100 seen
A1 30.0% cao
Answer: 30.0%.

Question 13

M1 revenue - cost of sales seen, e.g. 50,000 - 30,000
A1 £20,000 cao
Answer: £20,000.

Question 14

M1 fraction substitution seen, e.g. 20,000/50,000 or 20,000 50,000
A1 40.0% cao
Answer: Fraction = 20,000/50,000 = 2/5, Percentage = 40.0%.

Question 15

M1 fraction substitution seen, e.g. 10,000/50,000 or 10,000 50,000
A1 20.0% cao
Answer: Fraction = 10,000/50,000 = 1/5, Percentage = 20.0%.

Question 16

M1 (8,000 / 80,000) x 100 seen
A1 10.0% cao
Answer: 10.0%.

Question 17

M1 45,000 - 31,500 seen
dM1 (13,500 / 45,000) x 100 seen (dependent on the previous mark)
A1 30.0% cao
Answer: 30.0%.

Question 18

M1 formula or substitution seen: (20,000 / 50,000) x 100
A1 40.0% cao
Answer: 40.0%.

Question 19

M1 formula or substitution seen: (10,000 / 50,000) x 100
A1 20.0% cao
Answer: 20.0%.

Question 20

M1 45.0% converted to a decimal or fraction, e.g. 0.45 or 45/100
dM1 0.45 x 60,000 seen (dependent on the previous mark)
A1 £27,000 cao
Answer: £27,000.

Question 21

M1 profit for the year found, e.g. 0.15 x 60,000 = 9,000
dM1 27,000 - 9,000 seen (dependent on the previous mark)
A1 £18,000 cao
Answer: £18,000.

Question 22

B1 identifies the key idea, e.g. net profit margin is a percentage of revenue, not a pound amount, so it can fall even if profit in pounds rises
B1 develops, e.g. if revenue grew by a large enough amount, a smaller percentage of a much bigger revenue figure can still be a bigger pound amount of profit than before
B1 gives a worked example, e.g. 20% of £100,000 is £20,000, but 15% of a larger revenue of £150,000 is £22,500, which is more pounds of profit even though the percentage margin fell

Question 23

Level 1 (1-3): Makes simple comments about one business with limited use of the figures.
Level 2 (4-6): Provides a developed analysis comparing both businesses' cost control and overall profitability, correctly using the figures, and reaches a substantiated interpretation.
Indicative content:
- Bright Bean's higher gross profit margin (40.0% vs 30.0%) suggests it controls its cost of sales more tightly relative to revenue, or charges a bigger mark-up, than Sunny Slice Bakery.
- The gap between each business's own gross and net margin shows how much of gross profit is absorbed by expenses: for both businesses this gap is 20 percentage points (40.0% - 20.0% for Bright Bean; 30.0% - 10.0% for Sunny Slice), so both lose a similar SHARE of revenue to expenses even though their gross performance differs.
- Bright Bean's net profit margin (20.0%) is double Sunny Slice's (10.0%), meaning for every pound of revenue Bright Bean keeps twice as much as profit, which could give it more funds for investment or a bigger buffer against rising costs.
- Limitation: margin percentages alone do not show the actual pound amounts of profit if the two businesses' revenues differ in size, nor do they explain WHY costs differ, for example different suppliers, rent levels or staffing, so a full assessment would need more information.
- A reasoned conclusion is likely to judge Bright Bean Cafes the stronger performer on both cost control and overall profitability based on these margins, while noting that margins alone cannot fully explain the underlying causes.

Calculating Gross Profit Margin and Net Profit Margin - Worksheets, Questions and Revision

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