How to Calculate a Blended Gross Profit Margin
Gross profit, as you may already know, refers to the amount of profit money or profit a business organisation has after deducting the cost of goods, and blended gross profit is simply an extension of gross profit.
Companies that sell more than one product category have the option of reporting their gross profit for each individual unit separately, or they can aggregate the sales and the cost of goods reported by their several product category divisions into a single gross profit figure. The combined gross profit that we earn as a result of merging divisions is called blended gross profit.
Now, allow me to walk you through the formula for calculating the blended gross profit margin, which is the simplest one out there. The sum of the figures for each product division is what you will need in order to calculate the blended gross profit. In fact, in order to calculate blended gross profit, you are required to adhere to the same method that is often used to calculate gross profit. The only difference is in the case of blended gross profit is that the results from each division are aggregated together. Let me to explain this concept by giving you an illustration:
Imagine that your company, XYZ, is in the business of producing three different goods, such as utensils, shoes, and detergent. To begin, compile the total revenue generated by all three business segments ( in financial terminology it is called as total combined sales). Now, tally the cost of items sold for each of the three categories separately ( it is known as total combined cost of goods sold). Now, take these two numbers and subtract them to get the blended gross profit margin.
Hold on, I haven’t completed this yet. When the blended gross profit margin is divided by the total sales revenue, the resulting number is the blended gross profit.