Question

In the private-label operating benchmarks section on p.7 of each issue of the FIR, the industry-low, industry-average and industry-high benchmarks for the margins over direct costs should be interpreted as representing:
A. the gross profit a seller receives on each pair of private-label footwear sold.
B. how much the company received from each pair of private-label footwear sold over and above the cost of pairs sold these dollars are automatically deposited in a seller's retained earnings account and help boost the seller's credit rating.
C. how much sellers of private-label footwear received over and above the costs per pair sold; these margins, if positive, serve to improve a seller's operating profit in the designated region (negative margins over direct cost act to reduce a seller's operating profits in the region).
D. the net profit sellers earn (or lose--in the case of negative numbers) on each pair of private-label footwear supplied to a given region's chain retailers
E. cash that can be used to pay bank loans or increase dividend payments or be deposited in the company's retained earnings (to strengthen the company's balance sheet and credit rating).

Answer 1

Answer: Option (C).

The industry-low, industry-average and industry-high benchmarks for the margins over direct costs should be interpreted as representing how much sellers of private-label footwear received over and above the costs per pair sold; these margins, if positive, serve to improve a seller’s operating profits in the designated region (negative margins over direct cost act to reduce a seller’s operating profits in the region).