Question

Local Co. has sales of $ 10.8 million and cost of sales of $ 5.7 million. Its​ selling, general and administrative expenses are $ 550,000 and its research and development is $ 1.2 million. It has annual depreciation charges of $ 1.2 million and a tax rate of 35 %.
a. What is Local's gross margin? (answer in %, Round to one decimal place.)b. What is Local's operating margin? (answer in %, Round to one decimal place.)c. What is Local's net profit margin? (answer in %, Round to two decimal places.)

Answer 1

Answer:

Gross profit Margin = 47.2%

Operating profit margin = 19.9%

Net Profit Margin = 12.93%

Explanation:

Requirement A:  Gross profit margin

Gross Profit = Sales - Cost of sales

Gross Profit = 5.1m

Gross profit Margin = Gross profit/Sales x 100

Gross profit Margin = 5.1/10.8 x 100

Gross profit Margin = 47.2%

Requirement B: Operating profit margin

Operating profit margin = Operating Profit/ Sales x 100

Operating Profit = Gross Profit - selling,general and administrative expense -research and development - depriciation

Operating Profit = 5.1m - 0.55m - 1.2m - 1.2m

Operating Profit = 2.15m

Operating profit margin = 2.15m/10.8m x 100

Operating profit margin = 19.9%

Requirement C: Net profit Margin

Net Profit margin = Net profit / Sales x100

Net Profit = Operating profit - tax

Net Profit = 2.15m - (2.15m x 35%)

Net Profit = 2.15m - 0.7525m

Net Profit = 1.3975m

Net Profit Margin = 1.3975m/10.8m x 100

Net Profit Margin = 12.93%