RETAIL MARKETING OF MEATS 47 
count, instead of charging them to advertising as is sometimes done. 
Net sales is used as the common basis for comparing the operations 
of dealers, and for computing all percentages of profit and expense. 
Cost of merchandise sold. — Cost of merchandise sold is found 
by adding purchases to the initial inventory of stock and subtracting 
the closing inventory from this sum. Freight, express, and cartage 
on incoming merchandise are included as a part of cost, and deduc- 
tion is made for returns and allowances and for cash discounts taken 
for early payment of bills. Inventories are at billed cost, less de- 
preciation and discount taken at time of purchase. In the fresh- 
meat trade, inventories are usually so small as to be almost negligible. 
Gross margin. — This account is the total margin of the retailer, 
the difference between cost of merchandise sold and net sales. The 
term gross profit is more commonly used by accountants, but since 
from this item the expenses of the business must be paid and only a 
small part is actually profit, gross margin is preferred for this dis- 
cussion. 
Net profit. — Net profit is the balance remaining after payment of 
all expenses. It is found by subtracting the total of expenses as 
described below from gross margin. Since rent, interest on the in- 
vestment, and a salary for the routine work of supervision are in- 
cluded in operating expenses, the net profit is the return for general 
capacity in management and for the risk involved. Even when this 
account shows a net loss, the proprietor usually has had a net income 
from the business, derived from the routine salary allowed, the in- 
terest on the investment involved, and the rent of the store space if 
he owned it. 
Operating expenses. — Operating expenses include the obvious items 
of current expenditure, such as wages, wrappings, ice, taxes, depre- 
ciation on equipment through time and usage, fair compensation 
for services of the proprietor, rent for the store space whether owned 
or leased, and interest on the net investment. Where the work of 
the store is done entirety or in large part by the owner, for purposes 
of both logical analysis and of comparing and combining the data 
with those from other concerns where the work is done entirely or 
in large part b}^ paid labor, an allowance must be made of fair com- 
pensation for the services of the proprietor and of any unpaid mem- 
bers of his family. For similar reasons, rent of the store space, 
whether leased or owned, and interest on the net investment, whether 
the capital be borrowed or owned, are included as a part of operating 
expenses. 
In studies of operating expenses in merchandising on a large 
scale, it is often possible to divide total expenses into such groups 
as administrative or management, buying, and selling. In the retail 
meat trade, among the 40 per cent of straight meat markets operat- 
ing as one-man shops, such a division would serve no purpose what- 
ever. Even in substantially all concerns with annual sales less than 
$100,000, constituting perhaps 95 per cent of the total number of 
dealers and doing perhaps 75 or 80 per cent of the total business of 
the country, there would be much difficulty in making such a division. 
In individual concerns with annual sales of $100,000 or more, doing 
perhaps 15 or 20 per cent, and in chain-store systems, doing perhaps 
5 per cent of the total meat business of the country, these functions 
