What is the formula to estimate Cost of Goods Sold based on Gross Profit percentage?

The formula to estimate Cost of Goods Sold (COGS) based on the Gross Profit percentage is calculated using the Gross Profit percentage in relation to total sales. Gross Profit percentage (GP%) is defined as the ratio of Gross Profit to Sales. Therefore, if you want to find COGS, you need to consider how much of the sales is not contributing to the Gross Profit.

The Gross Profit is a portion of the total sales, so the remaining portion, which is the Cost of Goods Sold, can be mathematically represented as (1 - GP%) multiplied by Sales. This calculation effectively allows you to find out what percentage of sales was not included in the gross profit, which directly corresponds to the cost of goods sold. Hence, this formula accurately captures the relationship between sales and the components that yield both gross profit and COGS.

In contrast, other options do not correctly represent this relationship. Sales minus Gross Profit would give you an amount but would not relate to the percentage of COGS. Gross Profit percentage multiplied by Sales provides the actual dollar amount of gross profit rather than the cost of goods sold. Finally, adding Gross Profit to Sales is not mathematically correct in the context of calculating COGS. Therefore, the chosen formula