Question

Sales are $1 million, COGS is 30% of sales, fixed costs are $200,000 which include depreciation expense of $30,000, and interest expense is $20,000. Last year's operating profit margin was 40%. The operating profit margin this year is better than last year. True or false? (explain answer)

Answer 1

Answer is True

Explanation;

Yes, given statement is true because The operating profit margin this year is better than last year.

To understand it better, let’s calculate operating profit margin for current year;

Operating profit margin = Operating income / Sales

Operating income = $1000000 – $300000 – $200000 + $20000

= $520000

Hence, operating profit margin ($520000 / $1000000) = 52%

Last year operating profit margin is given = 40%

Hence, it is clear that The operating profit margin this year is better than last year.