Question

Local Co. has sales of $ 10.7 million and cost of sales of $ 6.2 million. Its​ selling, general and administrative expenses are  $ 530 comma 000 and its research and development is $ 1.4 million. It has annual depreciation charges of $ 1.3 million and a tax rate of 35 %. a. What is​ Local's gross​ margin? b. What is​ Local's operating​ margin? c. What is​ Local's net profit​ margin?

Answer 1

a. Gross Profit = Sales − Cost of Goods Sold = $10,700,000 − $6,200,000 = $4,500,000

Gross Margin = Gross Profit / Sales = $4,500,000 / $10,700,000 = 42.06%

b. Operating income = Gross Profit – General and Administrative Expenses – Research and Development – Depreciation = $4,500,000 - $530,000 - $1,400,000 - $1,300,000 = $1270,000

Operating margin = Operating Income / Sales = $1,270,000 / $10,700,000 = 11.87%

c. Net income = Operating income – Taxes = $1,270,000 x (1 - 0.35) = $825,500

Net Profit Margin = Net Income / sales = $825,500 / $10,700,000 = 7.72%