Question

Which of the following is NOT a driving force of the operating profit margin?

Select one:

a. The ability to control all of the firm's expenses

b. The ability to control general and administrative expenses

c. The average selling price for each product

d. The number of units of product sold

Answer 1

Option (b) is correct. Operating profit margin have not ability to control general and administration.

Operating profit margin = Sales - Cost of Good sold ( Direct expense) - other indirect expseses ( general and administration expseses) .

Operation Profit margin is really the part of Gross Profit margin ( Sales - Cost of Goods) that real factor of generating income by selling , production, puchase of goods. These items are directly related to generating Gross Profit margin . After getting gross profit margin , indirect expense are deducted from Gross margin profit to get net operation profit margin. The general and administration expseses are just to reduce the Operating profit margin not help to generate operating profit. Therefore, general and administration expseses are not driving force of operating profit margin.

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