Question

Local Co. has sales of $ 10.1 million and cost of sales of $ 5.5 million. Its​ selling, general and administrative expenses are $ 460 comma 000 and its research and development is $ 1.4 million. It has annual depreciation charges of $ 1.4 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 45.54 45.5​%. ​(Round to one decimal​ place.) b. What is​ Local's operating​ margin? ​Local's operating margin is nothing​%. ​(Round to one decimal​ place.) c. What is​ Local's net profit​ margin? ​Local's net profit margin is nothing​%. ​(Round to two decimal​ places.)

Answer 1

Answer:

1. 45.5%

2. 13.3%

3. 7.2%

Explanation:

The formulas and calculations are shown below:

1. Gross margin = (Sales - cost of sales) ÷ (sales) × 100

                          = ($10.1 million - $5.5 million) ÷ ($10.1 million) × 100

                          =  ($4.6 million) ÷ ($10.1 million) × 100

                          = 45.5%

Gross profit = Sales - cost of sales

2. Operating margin = (Gross profit - selling, general and administrative expenses - research and development - annual depreciation charges) ÷ (sales) × 100

= ($4.6 million -  $460,000 or $0.46 million - $1.4 million - $1.4 million) ÷ ($10.1 million) × 100

= ($1.34 million) ÷ ($10.1 million) × 100

= 13.3%

Operating income = Gross profit - selling, general and administrative expenses - research and development - annual depreciation charges

3. Net profit margin = (Operating income - taxes) ÷ (sales) × 100

= ($1.34 million - $0.6097 million) ÷ ($10.1 million) × 100

= ($0.7303 million) ÷ ($10.1 million) × 100

= 7.2%

The income tax expense =  Operating income × income tax rate

                                          = $1.34 million × 45.5%

                                           = $0.6097 million