Respuesta :
Given: Sales/Revenue = $10.6 million
Cost of goods sold = $5.6 million
General and administrative expenses = $550,000
Research and development expenses = $1.1 million
Annual depreciation = $1.3 million
Tax rate = 35%
Find: gross margin, operating margin and net profit margin
Solutions:
a) The Gross Margin is 47.2%
Gross Margin = (Revenue - Cost of Goods Sold)/Revenue
$10.6 million –$ 5.6 million = $5,000,000
$5,000,000/$10,600,000 = 0.4716 or 47.2%
b) The Operating Profit Margin is 72.2%
Operating Profit Margin = Operating Income / Sales Revenue
*Get first the total amount of operating income
Operating income = Gross Profit – General and Administrative Expenses – Research and Development – Depreciation
Operating income = $10,600,000 - $550,000 - $1,100,000 - $1,300,000
Operating income = $7,650,000
*Then get the operating margin
Operating margin = $7,650,000 / $10,600,000
Operating margin = 0.7216 or 72.2%
c) The net profit margin is 46.9%
Net Profit Margin = Net Income/ Total Revenues
*Get first the total amount of Net Income
Net Income = Total Revenues – Total Expenses
Net Income = $10,600,000 - $550,000 - $1,100,000 - $1,300,000
x (1-0.35)
Net Income = $7,650,000 x (1-0.35)
Net Income = $4,972,500
*Then get the Net Profit Margin
Net Profit Margin = $4,972,500/$10,600,000
Net Profit Margin = 0.4691 or 46.9%
Local's gross margin is 47.2%, its operating margin is 19.3%, and its net profit margin is 12.6%.
What is Profit Margin?
Profit margin refers to a metric that is used to determine the profitability of a business by dividing profit by sales or revenue and then expressed in percentage.
Gross, Operating, and Net Profit Margins of Local co. can be calculated as follows:
a. Local's gross margin can be calculated as follows:
Gross profit = Sales – Cost of Sales = $10,600,000 - $5,600,000 = $5,000,000
Therefore, we have:
Local's gross margin = Gross profit / Sales = $5,000,000 / $10,600,000 = 0.472, or 47.2%
b. Local's operating margin can be calculated as follows:
Operating expenses = General and Administrative Expenses + Research and Development + Depreciation = $550,000 + $1,100,000 + $1,300,000 = $2,950,000
Operating income = Gross profit - Operating expenses = $5,000,000 - $2,950,000 = $2,050,000
Therefore, we have:
Local's operating margin = Operating income / Sales = $2,050,000 / $10,600,000 = 0.193, or 19.3%
c. Local's net profit margin can be calculated as follows:
Net profit = Operating income – (Operating income * Tax rate) = $2,050,000 – ($2,050,000 * 35%) = $1,332,500
Therefore, we have:
Local's net profit margin = $1,332,500 / $10,600,000 = 0.126, or 12.6%
Learn more about profit margin here: https://brainly.com/question/25167841.
