Question

Builtrite's upper management has been comparing their books to industry standards and came up with the following question: Why is our operating profit margin higher than the industry standard and our net profit margin lower than the industry standard?
a. Builtrite has lower than average operating expenses
b. Builtrite has higher than average operating expenses
c. Builtrite has lower than average interest expense
d. Builtrite has higher than average interest expense

Answer 1

Answer:

B.) Builtrite has higher than average operating expenses

Explanation:

When we subtract the cost of goods sold from the net sales, what we have is called gross profit. A high gross profit could be that products are being sold at a higher price

If your gross profit margin is higher than industrial average you will have more chances of generating net profit. That is if your expenses are confined to industry average levels.

Operating profit is known as pretax profit. To get this, you subtract operating expenses from gross profit.

Its margin is = to operating income divided by the total revenue. A low operating margin even in the presence of higher gross profit is due to the fact that the company is not able to control its operating expenses or simply out, they are getting higher operating expenses when compared to industry.