Question

Financial information for two companies are presented below.

Fill in the missing amounts.

		Oriole Company		Ivanhoe Company
Sales revenue		$ 97,200		$
Sales returns and allowances				$  4,000
Net sales		83,000		106,000
Cost of goods sold		54,800
Gross profit		$		44,000
Operating expenses		14,700
Net income		$		15,600

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Calculate the profit margin and the gross profit rate for each company. (Round answers to 1 decimal place, e.g. 15.5%.)

		Oriole Company			Ivanhoe Company
Profit margin			%			%
Gross profit rate			%			%

Answer 1

Sales revenue - Sales returns and allowances = Net sales

Net sales - Cost of goods sold = Gross profit

Gross profit - Operating expenses = Net income

	Oriole Company	Ivanhoe Company
Sales revenue	$97,200	$110,000 ($4,000+$106,000)
Sales retuns and allownces	$14,200 ($97,200-$83,000)	$4,000
Net sales	$83,000	$106,000
Cost of goods sold	$54,800	$62,000 ($106,000-$44,000)
Gross profit	$28,200 ($83,000-$54,800)	$44,000
Operating expenses	$14,700	$28,400 ($44,000-$15,600)
Net income	$13,500 ($28,200-$14,700)	$15,600

Profit Margin = Net income / Net sales

Gross profit rate = Gross profit / Net sales

	Oriole Company	Ivanhoe Company
Profit margin	16.3% ($13,500/$83,000)	14.7% ($15,600/$106,000)
Gross profit rate	34% ($28,200/$83,000)	41.5% ($44,000/$106,000)