Question

Local Co. has sales of $10.8 million and cost of sales of $6.5 million. Its​ selling, general and administrative expenses are$540,000 and its research and development is $1.2 million. It has annual depreciation charges of $1.4 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?

a. What is​ Local's gross​ margin?

​Local's gross margin is __%.

​(Round to one decimal​ place.)

b. What is​ Local's operating​ margin?

​Local's operating margin is __%.

​(Round to one decimal​ place.)

c. What is​ Local's net profit​ margin?

​Local's net profit margin is __%.(Round to two decimal​ places.)

Answer 1

Solution

a. Gross profit= Sales- cost of sale of goods

= 10.8-6.5

= 4.3 million

Gross margin= Gross profit/sales

= 4.3/10.8

=39.8%

Thus Local's gross margin is 39.8%

b. Operating income= Gross profit- Depreciation-General and admin expenses- Research and dev expenses

=4.3-1.4-.54-1.2

= 1.16 million

Operating Margin= Operating income/sales

=1.16/10.8

=10.74%

Thus Local's operating margin is 10.7%

c. Now

Net income= Operating income - Taxes

=1.16- (1.16*.35)

=.754 million

Net profit margin= Net income/sales

=.754/10.8

=.0698

Thus local's net profit margin is 6.98%

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