Before answering the given question, let's look at the confusing issues. A variable cost is one that changes when your order changes, and is usually based on a percentage of what you sell, unlike fixed costs which remain unchanged, even if you do not buy or sell anything (rental or a lease stays the same , insurance on your equipment, for example remains the same and so on). Therefore, you are correct to consider the dealer margin as a variable cost because even if the percentage is fixed perhaps by legislation or contract, (say 5% like this question), the value will change when the amount sold changes, because it is a percentage.
Gross profit and net profit are the before and after tax amounts, and gross profit does not take any sales costs into account. So, in this question, gross profit would be the $9500 which it was sold for less the original cost which included insurance and freight of $4500. You could have even gone one step further back and looked at the cost before insurance and freight in order to find the original cost if the question had allowed. In this case, however, the $4500 is our starting point.
Take care when calculating VAT, which is very different from a post-sales tax. If the product is sold for $9500 including VAT you cannot work out 10% of $9500 because, remember, the VAT is already added to the $9500 which means that $9500 = 110% (in other words, it is the original cost which represents 100% plus the 10% VAT). If the VAT was 12% it would be represented by 112% and so on. So to work out what VAT has been added create an equation.
Let x= the amount before VAT
Therefore, 110% of x = 9500
Therefore, x (which is the pre-VAT amount) = $ 8636, 36 ($ 9500 divided by 110%).
The 5% dealer margin is the percentage that the dealer is allowed to add to the price and is calculated on the pre-VAT amount; so = $ 431, 82 ( 5% of $ 8636, 36).
Therefore, if we start with $ 4500 + $ 431, 82 + $ 863,64 = $ 5795, 46
= $ 3704, 54 net profit (because VAT and the dealer had to be paid).
The gross profit is $ 5000.