Question

1. Leete Inc. reported the following results from last year's operations:

Sales	$	14,000,000
Variable expenses		9,660,000
Contribution margin		4,340,000
Fixed expenses		2,940,000
Net operating income	$	1,400,000

Last year's margin was closest to:

A) 79.0%

B) 31.0%

C) 20.0%

D) 10.0%

Show solution

Answer 1

Margin or Profit margin is the percentage of sales that a business retains after all expenses have been deducted. This margin is a key indicator of the financial health of an entity. The calculation of the profit margin is sales minus total expenses, which is then divided by sales. The calculation is expressed as follows:

(Sales - Total expenses) ÷ Sale x 100 .....(1)

Or

Net operating income ÷ sales x 100. ......(2)

Solving question by formula (1)

Sales - $ 14,000,000

Total expense = variable expense + fixed expense

= $ 9,660,000 + $ 2,940,000

= $ 12,600,000

Margin = (14,000,000 - 12,600,00) ÷ 14,000,000 x 100

= 10%

Solving question by formula ....(2)

Sales = $ 14,000,000

Net operating income = $ 1,400,000

Margin = Net operating income ÷ sales x 100

=. 1,400,000 ÷ 14,000,000 x 100

= 10%

Answer is option D