Question

Local co. has sales of $ 10.6 million and cost of sales of $ 5.6 million. its​ selling, general and administrative expenses are $ 550 comma 000 and its research and development is $ 1.1 million. it has annual depreciation charges of $ 1.3 million and a tax rate of 35 %.
a. what is​ local's gross​ margin?
b. what is​ local's operating​ margin?
c. what is​ local's net profit​ margin?
a. what is​ local's gross​ margin? ​local's gross margin is nothing​%. ​(round to one decimal​ place.)

Answer 1

Given: Sales/Revenue = $10.6 million

           Cost of goods sold = $5.6 million

           General and administrative expenses = $550,000

           Research and development expenses = $1.1 million

           Annual depreciation = $1.3 million

           Tax rate = 35%

Find: gross margin, operating margin and net profit margin

Solutions:

a) The Gross Margin is 47.2%

Gross Margin = (Revenue - Cost of Goods Sold)/Revenue

$10.6 million –$ 5.6 million = $5,000,000

$5,000,000/$10,600,000 = 0.4716 or 47.2%

b) The Operating Profit Margin is 72.2%

Operating Profit Margin = Operating Income / Sales Revenue

*Get first the total amount of operating income

Operating income = Gross Profit – General and Administrative Expenses – Research and Development – Depreciation

Operating income = $10,600,000 - $550,000 - $1,100,000 - $1,300,000

Operating income = $7,650,000

*Then get the operating margin

Operating margin = $7,650,000 / $10,600,000

Operating margin = 0.7216 or 72.2%

c) The net profit margin is 46.9%

Net Profit Margin = Net Income/ Total Revenues

*Get first the total amount of Net Income

Net Income = Total Revenues – Total Expenses

Net Income = $10,600,000 - $550,000 - $1,100,000 - $1,300,000 x (1-0.35)
Net Income = $7,650,000 x (1-0.35)

Net Income = $4,972,500

*Then get the Net Profit Margin

Net Profit Margin = $4,972,500/$10,600,000

Net Profit Margin = 0.4691 or 46.9%