You get the gross profit contribution by multiplying the dollar gross profit per item times the number of items sold. You decided that adding a small increase to the price of the television sets will be better than adding a larger increase to each refrigerator. This means you have hit your gross profit target with a little to spare. Table 3 summarizes how each item contributes to the gross profit. This information is useful because it tells you what percent you should add to the wholesale cost of items you sell so that you generate the right amount of cash from sales to cover your expenses and earn a net profit.
Some items sell more quickly than others.
As you saw earlier, you generate a different amount of cash depending upon how much you mark up each item and depending upon how many items you sell of each type. This means that, on average, you are generating less cash to cover your expenses from each dollar of sales. You must observe how your product mix is changing and make the necessary price adjustments so that you do not come up short. A useful tool to help you generate enough cash to cover your expenses is to convert your gross profit in dollars to gross profit in percent. This allows you to project how much cash you will generate in the future from each dollar in sales.