Question

Financial information is presented below:

Operating expenses	$ 47000
Sales returns and allowances	6000
Sales discounts	9000
Sales revenue	190000
Cost of goods sold	99000

The profit margin would be

0.43.

0.17.

0.34.

0.16.

Answer 1

Option (B) 0.17 is correct.

Particulars	Amount
Sales Revenue	$        190,000
Less: Sales Return&Allowance	$            6,000
Less: Sales discounts	$            9,000
Net Sales	$        175,000
Less: Cost of goods sold	$          99,000
Gross Margin	$          76,000
Less: Operating Expense	$          47,000
Net Profit	$          29,000

*There are three types of profit margins- Gross, Operating and Net. (Basically, we consider net profit as profit margin).

*Gross Profit = Net Sales - COGS / Net Sales = $175,000 - 99,000 / 175,000 = $76,000 / 175,000 = 0.434285,

*Operating profit = (Operating profit / Net Sales) * 100 = $29,000 / 175,000 = 0.165714

*Net Profit Percentage = (Net Profit / Net Sales) * 100 = $29,000 / 175,000 = 0.165714

In general, the profit margin is a profitability ratio, which is expressed as %, Net profit divided by net sales., This is the main source for a company.

In the given options, Option is given in two decimals. Hence, if we round off the net profit % = 0.165714 to 0.17 is correct.

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