Question

A venture has net sales of $400,000, cost of goods sold of $200,000, operating expenses (selling, general, and administrative) of $100,000, and interest expenses of $50,000. What is the operating profit margin?

Answer 1

Given:

Net sales = $400000

Cost of goods sold = $200,000

Operating expenses = $100,000

Interest expenses = $50,000

To find:

The operating profit margin

Solution:

To calculate the operating profit margin, first we have to find the operating profit.

Subtract your total operating expenses from gross profit to calculate operating profit.

That is, $\text{Operating profit}=\text{Sales (Revenue) - Cost of goods sold - Operating expenses}$$\Rightarrow \ 400000-\ 200000-\ 100000=\ 100000$

Divide operating profit by gross revenue to calculate operating profit margin.

$\text{Operating profit margin} = \frac{\text{Operating profit}}{\text{Gross Revenue}}\times100$

$\Rightarrow\frac{100000}{400000}\times100=25\%$

Therefore, the Operating profit margin is 25%.