Today, I would like to explain to you the definition, meaning and calculation of blended gross profit margin with a simple example.
Gross profit, as you may be knowing, is the amount of money or profit a business entity has after the cost of goods is deducted and blended gross profit is nothing but an extension of gross profit.
Companies with more than one product category can either mention gross profit for each unit separately or they can combine the sales and cost of goods from all product category divisions into a single gross profit number. When divisions are combined, we get blended gross profit as a result.
Now, let me explain what is the simplest formula to calculate the blended gross profit margin. For blended gross profit what you need is the total figures of all product divisions.
Actually while calculating blended gross profit, you have to follow the same way we usually use to calculate gross profit. The only difference in case of blended gross profit is that results from every division are taken together. Let me illustrate this concept with an example:
Suppose you company XYZ manufactures three products such as utensils, shoes and detergent. First, sum up the sales of all three divisions together ( in financial terminology it is called as total combined sales).
Now, sum up the cost of goods sold for all three divisions ( it is known as total combined cost of goods sold). Now, subtract the two, you will get blended gross profit margin.
Wait i haven’t finished yet. Divide the blended gross profit margin by total sales revenue, the result you get is blended gross profit. Thank you!. I hope you have received the answer you were looking for.
In case you want me to provide further explanation with more examples, please feel free to share your questions while commenting below.