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gross profit is the "purchase markup". He indicated that in
California restaurants markups range from 125 percent to 225
percent, depending upon the quality of the restaurant, with
higher grade restaurants having higher percentage markups.
According to Shimmon, for a sales tax audit the California State
Board of Equalization uses a yardstick of a 100-percent markup on
food purchases to test the accuracy of total reported sales. On
the basis of data from the income tax returns of Toraya and the
Takaos, Shimmon calculated the following purchase markups for
Toraya's restaurants and the Takaos' Fillmore Street restaurant
to be as follows:
Purchases Markup
Year Toraya Fillmore St.
1988 171% 186%
1989 179 178
1990 194 186
1991 219 173
Additionally, Shimmon stated that according to the Golden
Gate Restaurant Association, normal cash sales reported are only
30 percent of total sales. For the restaurants in issue, Shimmon
calculated that their reported cash sales equaled the following
percentages of total reported sales:
Year Percentage
1988 60%
1989 64
1990 61
1991 61
Shimmon concluded that the restaurants' ratio of gross
profit to cost of sales and the restaurants' ratio of cash sales
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